<PAGE>
================================================================================
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d)
[X] of the Securities Exchange Act of 1934
For Fiscal Year Ended June 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From ..... to .....
Registrant, State of Incorporation,
Address and Telephone Number
----------------------------
GRC INTERNATIONAL, INC.
(a Delaware Corporation)
Commission 1900 Gallows Road I.R.S. Employer
File No. Vienna, Virginia 22182 Identification No.
---------- (703) 506-5000 ------------------
1-7517 95-2131929
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, $.10 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of July 31, 1997, the aggregate market value of the Registrant's voting
common stock held by non-affiliates was $42,391,690. As of July 31, 1997, there
were 9,552,652 shares of the Registrant's $.10 par value common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Corporation's 1997 Annual Meeting
of Shareholders are incorporated by reference into Part III of this report. The
Proxy Statement shall be filed in accordance with the rules of the Commission
within 120 days after the close of the fiscal year to which this report
pertains.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I.
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 40
PART III.
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners and Management 41
Item 13. Certain Relationships and Related Transactions 41
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 41
Signatures 42
</TABLE>
<PAGE>
Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the "Risk Factors" section of "Management's Discussion and
Analysis". Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by
the Company subsequent to this Annual Report on Form 10-K and any Current
Reports on Form 8-K filed by the Company.
PART I
ITEM 1. BUSINESS
--------
General
-------
GRC International, Inc. (the "Company") was organized in California in
1961. Since 1974, the Company has been a Delaware corporation. The Company is
headquartered in Vienna, Virginia.
Almost all of the Company's revenues have been generated from the Company's
professional services business. The Company's capabilities focus on information
technology consulting services provided primarily to the Department of Defense
("DoD") and its instrumentalities. The number of active contracts at year-end
1997, 1996 and 1995 were 144, 149 and 175, respectively, substantially all of
which were with the DoD.
The areas of expertise provided by these services include: software and
system engineering; business decision support systems; analytical modeling and
simulation; database design and implementation; legacy migration engineering;
network design and integration; systems integration; post deployment software
support; operational support and management; virtual manufacturing consulting;
communications engineering; and test and evaluation; among others.
These services are applied to such areas as: financial and personnel
management; automated acquisition systems; transportation planning and analysis;
manufacturing analysis; logistics planning; security clearance processing;
WAN/LAN analysis; training systems; as well as information warfare systems
relying on radar, optics, communication networks, electronics, navigation and
guidance, control, space, and surveillance systems.
As a professional service provider, the Company's revenues are critically
dependent upon the number and skill level of its employees. The Company's
ability to meet planned and expected revenue levels is a function, among other
things, of its ability to staff open positions with the personnel required to
satisfy its contractual backlog.
3
<PAGE>
The Company also develops software and products for commercial
telecommunications equipment providers, ranging from embedded communications
software to graphical user interfaces and resource managers. The Company's
primary commercial telecommunications customer is Lucent Technologies, Inc.
("Lucent"). The major task completed is the development of embedded software
applications and capabilities for the Lucent Digital Access Cross-Connect
Systems ("DACS"), particularly the development of embedded software for a Hybrid
DS3 Multiplexor for DACS II CEF product. The Company also provides graphical
user interfaces for a craftsperson to manage the DACS II ISX equipment and
development of a digital multi-point bridge application for DACSII ISX product.
Discontinued Operations
-----------------------
On February 28, 1997, the Company committed itself to a formal plan of
disposition for two of its business segments, its Telecommunications and
Advanced Products Divisions. The plan of disposition for the OSU and NetworkVUE
business units within the Telecommunications Division and the Commercial
Information Solutions business unit within the Advanced Products Division
involved the cessation of on-going operations and the sale of the residual
intellectual property associated with those business units. The plan of
disposition of the GRC Instruments/Dynatup and Vindicator(TM) business units of
the Advanced Products Division involved the sale of those businesses.
Consequently, the Company has reported its results of operations for the
Telecommunications and Advanced Products Divisions on a discontinued operations
basis. The Company's information technology and professional services business
(formerly known as the Professional Services Operations) constitutes its
continuing operations.
On April 30, 1997, the Company sold the assets and liabilities of its GRC
Instruments/Dynatup business for $2.0 million in cash.
On June 5, 1997, the Company sold the assets of its Vindicator business
unit within its discontinued Advanced Products Division. The sale was for book
value of approximately $700 thousand, with payment of $100 thousand at closing
and $150 thousand 90 days thereafter, both of which payments have been received
by the Company. The remainder of the purchase price is payable at a rate of 6%
of sales through 1998, but in all events, any remaining balance is payable in a
lump sum at December 31, 1998.
On June 27, 1997, the Company sold the assets and liabilities of its
Optical Service Unit ("OSU") business unit within its discontinued
Telecommunications Division. The sale was for a cash payment of $1.5 million
payable in part at, and the remainder shortly after, closing, both of which
payments have been received by the company, and a royalty schedule on sales of
the OSU unit or derivatives over the next 10 years.
The operations of the NetworkVUE business unit within the Company's
discontinued Telecommunications Division have been substantially curtailed, with
only maintenance of the NetSolve component of NetworkVUE being continued through
September 30, 1997, after which the remaining business may be shut down.
4
<PAGE>
The operations of the Commercial Information Systems ("CIS") component of
the Company's discontinued Advanced Products Division have been substantially
curtailed and are planned to be shut down in October 1997.
Patents, Trademarks, Licenses, Copyrights
-----------------------------------------
The Company has a variety of U.S. and foreign patents, patent applications,
trademarks and trademark applications, none of which are material.
Contracts
---------
Government contract revenues from professional and technical services,
either as prime contractor or subcontractor, represented approximately 95%, 93%,
and 96% of the Company's total revenues from the fiscal years ended June 30,
1997, 1996, and 1995, respectively. The Company's government contracts generally
fall into one of three categories: (1) cost reimbursable, (2) fixed price, or
(3) time and materials. Under a cost reimbursable contract, the government
reimburses the Company for its allowable costs and expenses, and pays a fee
which is either negotiated and fixed or awarded based on performance. Under a
fixed price contract, the government pays an agreed upon price for the Company's
services or products, and the Company bears the risk that increased or
unexpected costs may reduce its profits or cause it to incur a loss. Conversely,
to the extent the Company incurs actual costs below anticipated costs on these
contracts, the Company could realize greater profits. Under a time and materials
contract, the government pays the Company a fixed hourly rate intended to cover
salary costs and related indirect expenses plus a certain profit margin. For
fiscal years 1997, 1996, and 1995, approximately 60%, 62%, and 62%,
respectively, of the Company's professional and technical services revenues were
from cost reimbursable contracts, while approximately 40%, 38%, and 38%,
respectively, were fixed price or time and materials type contracts, with fixed
price constituting approximately 5% of the total in each year.
The Company's contracts are performed for a number of program offices
within various defense agencies, including each of the armed services. Customers
outside the field of defense and national security include other agencies of the
federal government and private industry. Any or all of the contracts with
agencies of the United States government may be subject to termination for the
convenience of the government. If a contract were to be terminated, the Company
would be reimbursed for its allowable costs up to the date of the termination,
and would be paid a proportionate amount of the fees attributable to the work
actually performed. In addition to the normal risks found in any business,
companies conducting research and analysis services for the United States
government are subject to changes in the defense budget, terminations of
contracts for cause or government convenience, and significant changes in
contract scheduling and funding.
At June 30, 1997, the Company had a maximum contract backlog amounting to
$372 million, compared to $326.8 million, and $235.3 million for 1996 and 1995,
respectively. For this purpose, maximum contract backlog generally assumes that
all government contract options for services in succeeding years will be
exercised and funded. Only a portion of the maximum contract backlog would
generally relate to the upcoming year. Funded contract backlog at June 30, 1997,
amounted to $44 million, compared to $48.5 million and $38.7 million for 1996
and 1995, respectively. Funded contract backlog represents the expected contract
5
<PAGE>
revenues for which contract awards have been made and funded, and, thus,
primarily represent the year-end backlog of firm orders for which revenues may
be expected in the following year.
Competition
-----------
The Company encounters substantial competition in the professional and
technical services area from a large number of entities, some of which are
significantly larger than the Company in size and financial resources. The
management of the Company believes that it has a relatively small percentage of
the total market. Competition comes principally from other companies and certain
non-profit organizations engaged in similar aspects of research and analysis.
Competitors include BDM, CACI, Computer Sciences Corporation, SAIC, and others.
Research and Development
------------------------
The Company performs R&D on its own behalf and on behalf of the U.S.
government under various government contracts. The Company's strategy, where
feasible and permissible, is to expand upon the government R&D work so as to
exploit it commercially.
Employees
---------
As of June 30, 1997, the Company employed 1,162 full-time or special full
time and 14 part-time people, a decrease of 173 people, or 13%, from the 1,335
people employed at June 30, 1996, comprised of 1,225 full-time and 110 part-time
people. The decrease is due primarily to the reductions in employment related to
discontinued operations. At June 30, 1997, the Company had approximately 210
openings for full-time employees, compared to approximately 222 openings at June
30, 1996.
ITEM 2. PROPERTIES
----------
All of the Company's operations are conducted in leased facilities. The
Company has approximately 27 leased facilities for continuing operations within
the United States comprising approximately 348 thousand square feet. The minimum
annual rentals for fiscal year 1998 under non-cancelable operating leases are
approximately $6.6 million. The terms of Company leases range from monthly
tenancies to multi-year leases, and many of these leases may be renewed for
additional periods at the option of the Company. Major leased facilities are at
locations in California and Virginia. The Company owns no real property and has
no plans to purchase any in the foreseeable future. The Company believes that
its facilities are adequate for its purposes.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in a number of legal proceedings arising out of
the normal course of its business, none of which, individually or in aggregate,
are, in the opinion of management, material to the operations of the Company or
are likely to have a material adverse impact on the Company's liquidity or
financial condition. The Company has a disputed $2.0 million obligation to
Quintessential Solutions Inc. (QSI) incurred with the acquisition of the rights
to QSI's operating software. Payments of $600,000 and $1,400,000 are due in
November 1996 and November 1997, respectively. Because of a dispute with QSI,
the Company did not make the November 1996 payment.
6
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matter was submitted to a vote of holders of the Company's
stock in the fourth quarter of fiscal year 1997.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------
Stock Prices and Dividends
--------------------------
The Company's common stock is traded on the New York and Pacific Stock
Exchanges. As of July 31, 1997, there were 1,380 holders of record of the
Company's common stock. Stock price information by quarter is presented in the
following table:
<TABLE>
<CAPTION>
Fiscal Year
Market ---------------------------------------------
Price 1997 1996
-------- ----------------- ---------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter 38 5/8 13 3/4 26 3/8 15 7/8
2nd Quarter 18 1/4 6 39 5/8 21 7/8
3rd Quarter 8 3/8 3 3/4 38 1/2 30 3/8
4th Quarter 6 1/4 4 1/4 44 5/8 31 1/4
</TABLE>
On September 19, 1997, the closing price of the Company's common stock
was $7 1/2.
The Company did not declare or pay any dividend with respect to its common
stock during any of the years included in the financial data, and the Board of
Directors does not presently intend to commence the payment of such dividends.
See Note 10 to the Consolidated Financial Statements for a discussion of the
Company's Shareholder Rights Plan under which a dividend of one common stock
purchase right is automatically issued for each share of the Company's common
stock.
Recent Sales of Unregistered Securities
---------------------------------------
During May and June 1997, the Company issued a total of 5,008 shares of
common stock to The Parsons Consulting Group, Inc. ("TPCG") in fulfillment of a
contractual obligation to compensate TPCG for services rendered to the Company.
The offering was exempt from registration under Section 4(2) of the Securities
Act as a transaction by an issuer not involving any public offering.
7
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ITEM 6. SELECTED FINANCIAL DATA
-----------------------
GRC International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Revenue $117,599 $117,016 $132,812 $122,872 $123,821
Operating income (loss) 4,622 (182)* 6,800* 6,468 5,758
Interest income (expense), net (1,343) (518) 270 319 139
Income tax (provision) benefit 10,582 --- --- (299) (308)
Cumulative effect of accounting change --- --- --- 1,000 ---
--------- --------- ---------- ----------- ----------
Income (loss) from continuing operations 13,861 (700) 7,070 7,488 5,589
Loss on discontinued operations (31,611) (16,937) (2,040) (375) (80)
--------- --------- ---------- ----------- ----------
Net income (loss) $ (17,750) $ (17,637) $ 5,030 $ 7,113 $ 5,509
========= ========= ========== =========== =========
Income (loss) per common share from continuing operations $ 1.46 $ (0.08) $ 0.75 $ 0.79 $ 0.61
Net income (loss) per common share $ (1.87) $ (1.92) $ 0.54 $ 0.76 $ 0.60
Weighted average number of common and common shares
equivalents 9,514 9,172 9,393 9,426 9,211
Working capital (excluding discontinued operations) $ 20,459 $ 14,857 $ 19,688 $ 24,683 $ 24,959
Net assets (liabilities) (discontinued operations) (4,591) 14,742 9,975 3,449 2,564
Total assets $ 65,964 $ 67,070 $ 71,107 $ 67,230 $ 64,202
Long-term debt (less current maturities) $ 28,153** $ 16,527** --- --- $ 3,051
Stockholders' equity $ 13,076 $ 28,675 $ 48,268 $ 45,040 $ 39,310
</TABLE>
* The operating loss for 1996 includes a write-off of $3.3 million in deferred
software and related costs, and the operating income for 1995 includes
write-off of $0.5 million for deferred software and a gain of approximately
$0.9 million from the sale of a facility.
** Excludes the QSI debt of $2 million in 1997 and $1.2 million in 1996. See
Note 11 to the Financial Statements.
Prior year balances have been restated to conform to 1997 presentation.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITION
-------------------
Summary
-------
The following table sets forth for the years indicated the percentage of
total revenues for each item in the Consolidated Statements of Income and the
percentage change of those items as compared to the prior year:
<TABLE>
<CAPTION>
Period to
Relationship to Total Revenues Period Change
------------------------------ ----------------------
FY97 FY96 FY95 97 vs. 96 96 vs. 95
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues 100% 100% 100% 0.5% -11.9%
Cost of revenues 82% 85% 83% -3.3% -10.0%
---- ---- ----
Gross Margin 18% 15% 17% 21.6% -21.2%
G&A, marketing, R&D expenses 14% 12% 12% 15.8% -6.7%
Write-Down 0% 3% 0% NM NM
-- -- --
Operating income 4% 0% 5% NM -102.7%
Net interest expense 1% 0% 0% 159.3% -291.9%
-- -- --
Income (loss) from continuing operations,
before income taxes 3% -1% 5% NM -109.9%
Provision (benefit) for income taxes -9% 0% 0% NM NM
--- -- --
Income from continuing operations 12% -1% 5% NM -109.9%
--- --- --
Loss from discontinued operations -21% -14% -2% NM -730.2%
Loss on disposal of discontinued
operations -5% 0% 0% NM NM
--- -- --
Net income (loss) -15% -15% 4% NM -450.6%
</TABLE>
"NM" indicates the percentage change is not meaningful.
Fiscal Year 1997 Compared to Fiscal Year 1996
- ---------------------------------------------
Continuing Operations
- ---------------------
Revenues
--------
Fiscal year 1997 revenues of $117.6 million were $583 thousand, or 1%,
higher than fiscal year 1996 revenues of $117.0 million.
For 1997, revenues of $117.6 million consisted of $115.9 million in
services revenues and $1.7 million in product revenues. For 1996, revenues of
$117.0 million consisted of $110.1 million in service revenues, $2.4 million in
product revenues, and $4.5 in revenues from the minority-interest portion of a
majority-owned joint venture, which was accounted for on a consolidated basis
through the first quarter of 1996. Excluding this $4.5 million in
minority-interest revenues, FY 1997 revenues increased by 4.4% over FY 1996,
9
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from $112.5 million to $117.6 million. The same change in revenues is the net
effect of a variety of factors, none significant, over the Company's
approximately 150 active contracts.
Cost of Revenues and Gross Profit
---------------------------------
Cost of revenues for 1997 amounted to $96.1 million, or 82% of revenues,
compared to $99.3 million, or 85% of revenues for 1996. Gross profit for 1997
amounted to $21.5 million, or 18% of revenues, compared to $17.7 million, or 15%
of revenues for 1996, an increase of 21%.
Operating Expenses and Operating Income
---------------------------------------
Fiscal year 1997 total operating expenses of $16.9 million, or 14% of
revenues, were $1.0 million less than the $17.9 million in operating expenses
for 1996. However, excluding a $3.3 million write off of capitalized software
and related items in FY 1996, operating expenses were $14.6 million in FY 1996.
The $2.3 million increase in adjusted operating expenses was attributable
primarily to bid and proposal and other general and administrative expense
increases during fiscal year 1997.
Operating profit from continuing operations for 1997 amounted to $4.6
million compared to a loss of $182 thousand for FY 1996.
Net Interest Income or Expense
------------------------------
Net interest expense of $1.3 million for 1997, compared to net interest
expense of $518 thousand for 1996, reflects the significant increase in debt
incurred during 1997 in order to fund what are now Discontinued Operations.
Income Tax Benefit
------------------
In fiscal year 1997, the Company recognized a $10.6 million deferred tax
asset related to its net loss carryforwards for income tax purposes, bringing to
$11.6 million the total net deferred tax asset.
As a result of tax losses incurred in prior periods, the Company, at June
30, 1997, had tax loss carryforwards amounting to $64 million. Under Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), the Company is required
to recognize the value of these tax loss carryforwards if it is more likely than
not that they will be realized by reducing the amount of income taxes payable in
future income tax returns. This in turn is a function of the forecasts of the
Company's profitability in future years. The Company's continuing operations
consist of its information technology services business. The Company has been
profitability engaged in this business for over 30 years and projects continued
profitability in the future. In recent years, the Company's losses have been due
to this profitability being more than offset by the losses generated from its
Telecommunications and Advanced Product Divisions. With those Divisions now
having been discontinued, the Company expects to report profits for income tax
purposes in the future. As a consequence, the Company has now recognized a
portion of the benefit available from its tax loss carryforwards.
10
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Income or Loss from Continuing Operations
-----------------------------------------
Income from continuing operations for 1997 amounted to $13.9 million,
compared to a loss of $700 thousand for 1996.
Discontinued Operations
-----------------------
During the quarter ended March 31, 1997, the Company adopted a plan to
dispose of the Company's Telecommunications and Advanced Products Divisions
("Discontinued Divisions"). The Company expects that none of the final disposal
dates of the business units within the Discontinued Divisions will be later than
February 28, 1998.
On April 30, 1997, the Company sold the assets and liabilities of its GRC
Instruments/Dynatup business unit for $2.0 million. The proceeds received were
used to pay down the Company's obligation under the Equipment Lease.
On June 5, 1997, the Company sold the assets of its Vindicator security
business unit within its discontinued Advanced Products Division. The sale was
for book value of approximately $700 thousand, with payment of $100 thousand at
closing and $150 thousand 90 days thereafter, both of which payments have been
received by the Company. The remainder of the purchase price is payable at a
rate of 6% of sales, but in all events, any remaining balance is payable in a
lump sum at December 31, 1998.
On June 27, 1997, the Company sold the assets and liabilities of its
Optical Service Unit ("OSU") business unit within its discontinued
Telecommunications Division. The sale was for a cash payment of $1.5 million
payable in part at, and the remainder shortly after, closing, both of which
payments have been received by the Company, and a royalty schedule on sales of
the OSU unit or derivatives over the next 10 years.
The operations of the NetworkVUE business unit within the Company's
discontinued Telecommunications Division have been substantially curtailed, with
only maintenance of the NetSolve component of NetworkVUE being continued through
September 30, 1997, after which the remaining business may be shut down.
The operations of the Commercial Information Systems ("CIS") component of
the Company's discontinued Advanced Products Division have been substantially
curtailed and are planned to be shut down in October 1997.
For fiscal year 1997, the loss from Discontinued Operations amounted to
$31.6 million, comprised of a loss of $25.2 million from operations of
Discontinued Divisions and a loss of $6.4 million on estimated disposal of
Discontinued Operations, including operating losses during the phase out.
For fiscal year 1996, the loss from Discontinued Operations amounted to
$16.9 million, comprised entirely of losses from operations of Discontinued
Divisions.
11
<PAGE>
Net Income or Loss
------------------
Net loss for fiscal year 1997 amounted $17.8 million, comprised of a profit
from Continuing Operations of $13.8 million and a loss from Discontinued
Operations of $31.6 million.
Net loss for fiscal year 1996 amounted to $17.6 million, comprised of loss
of $700 thousand from Continuing Operations and a loss from Discontinued
Operations of $16.9 million.
Fiscal Year 1996 Compared to Fiscal Year 1995
- ---------------------------------------------
Continuing Operations
- ---------------------
Revenues
--------
Fiscal year 1996 revenues of $117.0 million were $15.8 million, or 13.5%,
lower than fiscal year 1995 revenues of $132.8 million.
For 1996, revenues of $117.0 million consisted of $110.1 million from
service revenues, $2.4 million from product sales, and $4.5 million from the
minority-interest portion of the majority-owned joint venture. For 1995,
revenues of $132.8 million consisted of $116.7 million in service revenues and
$1.5 million in product revenues, and $14.6 million from the minority-interest
portion of a majority-owned joint venture.
Excluding the minority-interest portion of the majority-owned joint
venture, revenues for FY 1996 decreased $5.7 million, or 5%, from FY 1995
revenues of $118.2 million. The same change in revenues is the net effect of a
variety of factors, none significant, over the Company's approximately 150
active contracts.
Cost of Revenues and Operating Profit
-------------------------------------
Cost of revenues for 1996 amounted to $99.3 million, or 85% of revenues,
compared to $110.4 million, or 83% of revenues for 1995. Operating loss for 1996
amounted to $182 thousand, compared to $6.8 million, or 4% of revenues for 1995.
Operating Expenses and Operating Income
---------------------------------------
Fiscal year 1996 total operating expenses of $17.9 million, or 15% of
revenues, were $2.3 million more than the $15.6 million, or 12% of revenues, in
operating expenses for 1995. However, excluding a $3.3 million write off of
capitalized software and related items in FY 1996, operating expenses were $14.6
million in FY 1996. The $1.0 million decrease in adjusted operating expenses was
attributable primarily to reduced bid and proposal net of other general and
administrative expense increases during fiscal year 1996.
The operating loss from continuing operations of $182 thousand for 1996
contrasts with an operating profit of $6.8 million for 1995.
12
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Net Interest Income or Expense
------------------------------
Net interest expense for 1996 of $518 thousand contrasts with net interest
income of $270 thousand for 1995. Increased expense of $788 thousand was due to
the Company's increased debt.
Net Income or Loss from Continuing Operations
---------------------------------------------
The net loss from Continuing Operations for 1996 of $700 thousand contrasts
with net income from Continuing Operations of $7.1 million for 1995.
Discontinued Operations
-----------------------
The net loss from Discontinued Operations for fiscal year 1996 amounted to
$16.9 million, compared to a loss of $2.1 million for 1995. The 1996 loss
included a substantial write down of capitalized software.
Net Income or Loss
------------------
The net loss for fiscal year 1996 amounted to $17.6 million, comprised of
net loss from Continuing Operations of $700 thousand and a net loss from
Discontinued Operations of $16.9 million, compared to a net income for fiscal
year 1995 of $5.0 million, comprised of net income of $7.1 million from
Continuing Operations and a net loss of $2.1 million from Discontinued
Operations.
Financing
---------
On January 21, 1997, the Company entered into a Convertible Securities
Subscription Agreement ("Subscription Agreement") pursuant to which an investor
purchased a $4 million 5% Convertible Debenture due January 2000 ("Debenture").
Also on January 21, 1997, the Company entered into a Structured Equity Line
Flexible Financing Agreement ("Equity Line Agreement") whereby an investor may
purchase up to $18 million in the Company's Common Stock over a 3 1/2 year
period beginning July 1, 1997.
The Debenture bears interest at a 5% rate per annum payable quarterly in
cash or, at the Company's option, the amount due may be added to the outstanding
principal due under the Debenture. The Debenture is convertible into the
Company's Common Stock at the lesser of (i) $11 per share, or (ii) 94% of the
low trade during the 3 trading days immediately preceding the date of
conversion. The investor also received a 7-year warrant to purchase 320,000
shares of the Company's Common Stock at a price of $8.47 per share ("Debenture
Warrant"). Under a related Registration Rights Agreement ("Registration Rights
Agreement"), the Company was obligated to file a registration statement with the
Securities and Exchange Commission (which registration statement has now become
effective) with respect to the Company's Common Stock into which the Debenture
is convertible and for which the Debenture Warrant is exercisable. If the
Company is in default under the Debenture, the investor may put the Debenture to
the Company at 120% of the amount outstanding. The Debenture Warrant is not
exercisable for 18 months, but becomes immediately exercisable if the Company
sells substantially all of its assets or
13
<PAGE>
enters into a merger or acquisition or other similar transaction, and in such
event the Debenture Warrant is repriced at the lesser of (i) $8.47 per share, or
(ii) 80% of the Transaction Value (as defined in the Debenture Warrant), and the
investor has the option to put the Debenture to the Company at 115% of the
amount outstanding. Other terms, conditions, and limitations apply to the
Subscription Agreement, the Debenture, the Registration Rights Agreement and the
Debenture Warrant, which have been filed as Exhibits to the Company's report on
Form 10-Q for the quarter ended December 3, 1996, and are incorporated by
reference as Exhibits to the present report. As of September 17, 1997, the
holder of the Convertible Debenture has given the Company Conversion Notices
converting $2.0 million of the $4 million Debenture into 405,817 shares.
Under the Equity Line Agreement, the investor may, but is not required to,
purchase up to $3 million of the Company's Common Stock during the 6 month
period beginning July 1, 1997. For the 3 years after that initial 6-month
period, the Company can require the investor to purchase up to $3 million of the
Common Stock per quarter up to an aggregate maximum of $18 million under the
Equity Line Agreement. The purchase price is equal to 94% of the low trade price
during the 3 trading days immediately preceding the notice of purchase by the
investor. The investor, however, may not purchase Common Stock if such low trade
price is less than $4 per share. If the Company issues less than $5 million of
its Common Stock under the Equity Line Agreement, it must pay the investor up to
$300,000 as liquidated damages. The investor also received a 7-year Warrant to
purchase 125,000 shares of the Company's Common Stock at a price of $8.47 per
share ("Equity Line Warrant"). If the Company elects to issue more than $5
million, the Company will issue an additional 7-year warrant for the purchase of
75,000 shares of the Company's Common Stock ("Additional Equity Line Warrant")
at a price equal to 140% of the price of the Common Stock at the time of the
issuance of the Additional Equity Line Warrant. Under a related Registration
Rights Agreement ("Registration Rights Agreement"), the Company was obligated to
file a registration statement with the Securities and Exchange Commission with
respect to the Company's Common Stock for which the Equity Line Warrant and the
Additional Line Warrant (collectively, the "Equity Line Warrants") are
exchangeable. The Equity Warrant is not exercisable for 18 months, but becomes
immediately exercisable if the Company sells substantially all of its assets or
enters into a merger or acquisition or other similar transaction, and in such
event is repriced at the lesser of (i) $8.47, or (ii) 80% of the Transaction
Value (as defined in the Equity Line Warrant). The Additional Equity Line
Warrant, if and when issued, would contain provisions similar to the Equity Line
Warrant. The investor's obligation to purchase under the Equity Line Agreement
is subject to various conditions, including (i) the effectiveness of a
registration statement with respect to the underlying shares (which registration
statement is now effective), (ii) limitations based on the price and volume of
the Company's Common Stock, and (iii) the percentage of the Common Stock
beneficially owned by the investor from time to time. Other terms, conditions,
and limitations apply to the Equity Line Agreement, the Registration Rights
Agreement and the Equity Line Warrant, which have been filed as Exhibits to the
Company's report on Form 10-Q for the quarter ended December 3, 1996, and are
incorporated by reference as Exhibits to the present report. The investor has
not yet purchased any shares under the Equity Line Agreement.
14
<PAGE>
Liquidity and Capital Resources
-------------------------------
The Company had $5.8 million in cash and cash equivalents at June 30, 1997,
compared to $2.8 million at June 30, 1996.
Net cash provided by continuing operations amounted to $5.7 million for
fiscal 1997, compared to $10.6 million for fiscal 1996. Net cash used in
discontinued operations amounted to $12.4 million for fiscal 1997, compared to
$21.7 million in fiscal 1996. Net cash used in investing activities for fiscal
1997 amounted to $3.8 million, compared to $4.7 million for the prior year. Net
cash provided by financing activities amounted to $13.6 million for fiscal 1997,
compared to $15.8 million provided in fiscal 1996. The net increase in cash and
cash equivalents for fiscal 1997 amounted to $3.0 million, compared to an
increase of cash and cash equivalents of $111 thousand in the prior year.
As a result of the increase in funded debt (interest bearing current and
long term debt) and operating losses during fiscal year 1997, the Company's
ratio of total funded debt (net of cash) to total capitalization (with equity on
a book value basis) amounted to 67% at June 30, 1997, compared to 37% at June
30, 1996.
Liquidity over the next year will be determined by (a) net cash flow from
continuing operations, (b) capital expenditure requirements for continuing
operations, (c) payments of interest on outstanding debt, (d) cash expenditures
required with respect to discontinued operations, (e) cash inflows, if any, from
the proceeds of the sale of, and any related royalties from discontinued
operations, and (f) net proceeds received from the issuance of equity pursuant
to the Equity Line Agreement. For fiscal 1998, the Company expects to have
positive cash flow from continuing operations, including capital expenditures
and payments on outstanding debt. Including cash expenditures required for
discontinued operations, the Company expects to be breakeven in net cash flow,
before the inclusion of any proceeds from the sale of discontinued operations.
After the inclusion of proceeds, if any, from the sale of discontinued
operations and with the proceeds, if any, from the Equity Line Agreement, the
Company expects to have positive net cash flows over the next year. Given the
number of factors, some of which cannot be foreseen, which can influence this
expectation, actual results may differ materially from those expected.
At June 30, 1997, the Company had $29.8 million of debt, $1.7 million of
which was classified as short term, and $28.1 million of which was classified as
long term. The Company had $17.8 million of bank debt and equipment lease
financings at June 30, 1996.
The credit facilities with the Company's bank consist of the following: an
$8 million term loan ("Term Loan") available on an approval basis, of which $4.9
million was drawn down at June 30, 1997; a $22 million revolving line of credit
("Revolving Credit"), of which $19.3 million was used at June 30, 1997; and a
$2.9 million debt (as of June 30, 1997) arising from the equipment financing
("Equipment Lease") arranged with the bank's equipment leasing subsidiary. Of
the proceeds received from the sale of discontinued business units, $3.3 million
were used to pay down a portion of the Company's obligation under the Equipment
Lease and $100 thousand was used to pay down a portion of the term loan during
the fourth quarter of fiscal 1997.
15
<PAGE>
The Term Loan is due on September 1, 1998, and bears interest at the bank's
floating prime rate, currently 8.50% per annum. If the Company is unable to
obtain an extension of the Term Loan, it intends to pay it out of a combination
of (i) operating cash flows, (ii) the Revolving Credit, and/or (iii) the Equity
Line Agreement. The Revolving Credit is due on January 15, 1999, and, if the
Company is not in default, is automatically renewable for one-year renewal terms
unless the bank, at its option, delivers written notice of non-renewal to the
Company at least 15 months prior to the end of the initial term or any renewal
term. No notice of non-renewal was received by October 15, 1996, and, thus, the
Revolving Credit is repayable on January 15, 1999. The Revolving Credit has
typically been renewed in the past, and the Company anticipates that it will
continue to be renewed, although there is no guarantee of renewal. The Revolving
Credit bears interest at the bank's floating prime rate, currently 8.50% per
annum. The Term Loan and Revolving Credit facilities are collateralized by the
Company's working capital and equipment. The Equipment Lease was originally for
a term of 60 months which commenced in June 1996 and bears interest at 9%. It is
now expected to be paid in full by the end of fiscal 1999, under the revised
payment schedule.
The Amended and Restated Revolving Credit and Term Loan Agreement ("Loan
Agreement") containing the Term Loan and Revolving Credit was amended as of
March 31, 1996, and again as of June 30, 1996, to amend various financial ratio
covenants so as to bring the Company into compliance with those covenants as of
those dates. At September 30, 1996, the Company was in compliance with its
covenants under this Agreement. At December 31, 1996 and March 31, 1997, the
Company was in breach of financial covenants under the Loan Agreement. On
February 7, 1997 and May 13, 1997, the Loan Agreement was again amended as of
December 31, 1996 and March 31, 1997, respectively, to bring the Company into
compliance with the covenants thereunder. At June 30, 1997, the Company was in
compliance with its covenants under this Agreement.
The chairman of the board of the bank providing the credit under the Loan
Agreement and Equipment Lease is a member of the Board of Directors of the
Company. The Company believes that the terms of its credit agreements with the
bank are substantially similar to those that could have been obtained from an
unaffiliated third party.
Outlook
-------
With the discontinuation of the Telecommunications and Advanced Products
Divisions, the Company is now focused on its information technology and
professional services business. This business has been and is expected to remain
profitable with positive operating cash flows. With the positive free cash flow
expected from the services business and with the potential to raise additional
equity from the Company's Equity Line Agreement, the Company expects, over time,
to reduce substantially the outstanding principal amount of its bank debt.
16
<PAGE>
Risk Factors
------------
The Company and its shareholders face a number of risks, including, but not
limited to:
. The Company's ability to sufficiently grow its services business to
generate the needed positive free cash flow to support the debt service
described above.
. The Company's ability to manage within amounts accrued for, and to fund
residual net cash expenditures required by, its discontinued operations.
. The Company's ability to keep and attract the personnel required to
service its current and future contract portfolio.
. A dependence upon government contracting in general, and particularly a
high concentration of the Company's business with the U.S. Department of Defense
and its instrumentalities.
. The high degree of financial leverage under which the Company will
continue to operate until its current debt levels are reduced and its equity
levels increased.
. The risk that the Equity Line Agreement will not remain available, either
because the investor does not make required purchases due to any future
securities registration problems, or otherwise.
ITEM 8. FINANCIAL STATEMENTS
--------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 18
Report of Management 19
Consolidated Statements of Income for the years ended
June 30, 1997, 1996 and 1995 20
Consolidated Balance Sheets as of June 30, 1997 and 1996 21-22
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995 23-24
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1997, 1996 and 1995 25
Notes to Consolidated Financial Statements 26
</TABLE>
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of GRC International, Inc.:
Vienna, Virginia
We have audited the accompanying consolidated balance sheets of GRC
International, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of GRC International, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
McLean, Virginia
August 13, 1997
18
<PAGE>
REPORT OF MANAGEMENT
The management of GRC International, Inc. is responsible for all information and
representations contained in the annual report. The consolidated financial
statements, which include amounts based on estimates and judgments of
management, have been prepared in conformity with generally accepted accounting
principles. Other financial information in the annual report is consistent with
the consolidated financial statements.
The Company maintains a system of internal financial controls which provides
management with reasonable assurance that transactions are recorded and executed
in accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that records are maintained so as to permit preparation of
financial statements in accordance with generally accepted accounting
principles. This system includes written policies and an organizational
structure that segregates duties. The Company also has instituted policies and
guidelines which require all employees to conduct business according to the
highest standards of integrity.
In addition, the Audit Committee of the Board of Directors, consisting solely of
outside directors, meets periodically with management and the independent
auditors to discuss auditing, internal accounting controls and financial
reporting matters and to ensure that each is properly discharging its
responsibilities. The independent auditors periodically meet alone with the
Audit Committee and have full and unrestricted access to the Committee at any
time.
GRC INTERNATIONAL, INC.
/s/ Jim Roth /s/ Ronald B. Alexander
- ------------------------------------- -------------------------------------
Jim Roth Ronald B. Alexander
President and Chief Executive Officer Senior Vice President-Finance,
Treasurer and Chief Financial Officer
19
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(in thousands, except for per share data)
<S> <C> <C> <C>
Revenues $117,599 $117,016 $132,812
Cost of services 96,123 99,344 110,414
Write down of deferred software
and other related costs --- 3,283 ---
Indirect and other costs 16,854 14,571 15,598
-------- -------- --------
Operating income (loss) 4,622 (182) 6,800
Interest (expense) income, net (1,343) (518) 270
-------- -------- --------
Income (loss) from continuing operations
before benefit for income taxes 3,279 (700) 7,070
Benefit for income taxes 10,582 --- ---
-------- -------- --------
Income (loss) from continuing operations 13,861 (700) 7,070
-------- -------- --------
Discontinued Operations:
- -----------------------
Loss from discontinued operations (25,220) (16,937) (2,040)
Loss on disposal of discontinued operations,
including provision of $2,775 for
operating losses during phase out (6,391) --- ---
-------- -------- --------
Loss from discontinued operations (31,611) (16,937) (2,040)
-------- -------- --------
Net income (loss) $(17,750) $(17,637) $ 5,030
======== ======== ========
Earnings Per Share Amounts:
- --------------------------
Income (loss) from continuing operations $ 1.46 $ (0.08) $ .75
Net income (loss) $ (1.87) $ (1.92) $ .54
Common shares and equivalents 9,514 9,172 9,393
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30,
--------------
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,756 $ 2,790
Accounts receivable, net 25,087 26,096
Unbilled reimbursable costs and fees, net 4,076 4,014
Other receivables 1,090 1,000
Prepaid expenses and other current assets 576 629
Deferred income taxes 2,686 760
Net assets related to discontinued operations --- 2,604
------- -------
Total current assets 39,271 37,893
------- -------
PROPERTY AND EQUIPMENT, at cost:
Land, buildings and leasehold improvements 4,874 4,451
Equipment, furniture and fixtures 15,093 12,854
Less - Accumulated depreciation and amortization (9,414) (7,610)
------- -------
10,553 9,695
------- -------
OTHER ASSETS:
Goodwill and other intangible assets, net 2,409 2,274
Software development costs, net 461 467
Deferred income taxes 8,896 240
Deposits and other 4,374 4,363
Net assets related to discontinued operations --- 12,138
------- -------
16,140 19,482
------- -------
$65,964 $67,070
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30,
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,679 $ 1,243
Accounts payable 2,610 4,807
Accrued compensation and benefits 12,210 11,897
Income taxes payable 384 270
Accrued expenses and other current liabilities 1,929 2,215
Net liabilities related to discontinued operations 4,591 ---
--------- ---------
Total current liabilities 23,403 20,432
--------- ---------
LONG-TERM LIABILITIES
Long-term debt 28,153 16,527
Other long-term liabilities 1,332 1,436
--------- ---------
Total long-term liabilities 29,485 17,963
--------- ---------
COMMITMENTS AND CONTINGENCIES --- ---
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value -
Authorized - 300,000 shares,
issued and outstanding - 0 shares
in 1997 and 1996 --- ---
Common stock, $.10 par value -
Authorized - 30,000,000 shares,
issued - 9,849,000 shares in 1997
and 9,586,000 shares in 1996 985 958
Paid-in capital 76,954 74,830
Accumulated deficit (61,018) (43,268)
--------- ---------
16,921 32,520
Less: Treasury stock, at cost; 300,000 shares
in 1997 and 1996 (3,845) (3,845)
--------- ---------
Total stockholders' equity 13,076 28,675
--------- ---------
$ 65,964 $ 67,070
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Income (loss) from continuing operations $ 13,861 $ (700) $ 7,070
Reconciliation of income from continuing operations
Depreciation and amortization 3,330 3,509 2,483
Loss provision on current assets 1,067 956 857
Gain on disposal of property and equipment --- --- (900)
Income tax benefit (10,582) --- ---
Write-down of deferred software and related costs --- 3,283 ---
Changes in assets and liabilities
Accounts receivable (120) 5,414 (952)
Prepaid expenses and other current assets (37) 239 1,092
Accounts payable (2,197) (2,472) 2,593
Accrued expenses and other current liabilities 227 467 (399)
Income taxes payable 114 (176) (500)
Other (11) 129 (46)
---------- ---------- ----------
Net cash provided by operating activities 5,652 10,649 11,298
---------- ---------- ----------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Reconciliation of income from discontinued operations
Loss from discontinued operations (31,611) (16,937) (2,040)
Non-cash charges and changes in net assets 9,429 (4,767) (6,526)
Proceeds from sale of discontinued operations 3,366 --- ---
Provision for loss on disposal of discontinued operations 6,391 --- ---
---------- ---------- ----------
Net cash used by discontinued operations (12,425) (21,704) (8,566)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (3,468) (3,141) (3,206)
Proceeds from sale of property and equipment --- --- 880
Deferred software costs (97) (2,919) (1,405)
Proceeds from notes receivable --- 1,440 2,750
Other (247) (35) (9)
---------- ---------- ----------
Net cash used by investing activities (3,812) (4,655) (990)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt and capital lease obligations (4,443) (148) (118)
Bank borrowings 13,881 17,925 ---
Proceeds from convertible debenture, warrants and other 4,000 --- ---
Deferred financing costs (207) --- ---
Issuance of common stock 320 --- 466
Taxes related to exercises of employee stock options --- (1,956) ---
Purchases of treasury stock --- --- (3,071)
---------- ---------- ----------
Net cash provided (used) by financing activities 13,551 15,821 (2,723)
---------- ---------- ----------
Net increase (decrease) in cash and equivalents 2,966 111 (981)
Cash and equivalents at beginning of period 2,790 2,679 3,660
---------- ---------- ----------
Cash and equivalents at end of period $ 5,756 $ 2,790 $ 2,679
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid for:
Interest $2,055 $754 $371
Taxes 80 84 111
Other non-cash financing activities:
Conversion of debenture to common stock 750 --- ---
</TABLE>
24
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------
<TABLE>
<CAPTION>
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
------ ------ ------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balances as of June 30, 1994 9,152 $ 915 $ 76,363 $ (30,661) $ (1,577)
Proceeds from stock options exercised 173 17 449 --- ---
Net Income --- --- --- 5,030 ---
Purchase of 157,500 shares of Treasury Stock --- --- --- --- (2,268)
------ ------- -------- --------- ---------
Balances as of June 30, 1995 9,325 932 76,812 (25,631) (3,845)
Stock options exercised net of shares retained
for exercise price and taxes 261 26 (1,869) --- ---
Compensation on officers' stock options --- --- 88 --- ---
Discount on Employee Stock Purchase Plan --- --- (201) --- ---
Net loss --- --- --- (17,637) ---
------ ------- -------- --------- ---------
Balances as of June 30, 1996 9,586 958 74,830 (43,268) (3,845)
Stock options exercised net of shares retained
for exercise price and taxes 73 8 365 --- ---
Compensation on officers' stock options 4 --- 31 --- ---
Discount on Employee Stock Purchase Plan --- --- (86) --- ---
Conversion of debenture to common stock 184 18 732 --- ---
Proceeds from sale of warrants and other --- --- 882 --- ---
Stock issued for consulting services 5 1 200 --- ---
Net loss --- --- --- (17,750) ---
------ ------- -------- --------- ---------
Balances as of June 30, 1997 9,852 $ 985 $ 76,954 $ (61,018) $ (3,845)
====== ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
----------------------------------------------------------------
25
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
June 30, 1997, 1996 and 1995
----------------------------
(1) ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include
---------------------------
the accounts of GRC International, Inc. and all subsidiaries (the Company). All
significant intercompany balances and transactions have been eliminated.
Major customer - 94%, 91% and 92% of the Company's revenues were derived
--------------
from contracts with the U.S. Department of Defense (DoD) and 4%, 9% and 17% of
revenues were derived from one contract for fiscal years 1997, 1996 and 1995,
respectively.
Cash and cash equivalents - Cash and cash equivalents include cash on hand,
-------------------------
cash in banks and temporary investments purchased with an original maturity of
three months or less.
Inventories - Inventory costs include materials, labor and manufacturing
-----------
overhead. Inventories are priced using the average unit cost method and are
included in prepaid and other current assets.
Property and equipment - Expenditures for betterments and major renewals
----------------------
are capitalized and ordinary maintenance and repairs are charged to operations
as incurred.
Depreciation is computed using the straight-line method based on the
estimated useful lives of assets, which range from 3 to 10 years. Amortization
of leasehold improvements is computed using the straight-line method based on
the remaining term of the related lease.
Upon sale or retirement of property and equipment, the difference between
the proceeds and the net book value of the assets is charged or credited to
income.
Intangible assets - Goodwill, representing the cost in excess of the fair
-----------------
value of the net assets of businesses acquired, is being amortized to operations
on a straight-line basis over periods of up to 40 years. Other intangible assets
are being amortized to operations on a straight-line basis over periods of up to
15 years. The Company periodically evaluates the goodwill and other intangible
assets in relation to the operating performance and future contribution to the
underlying businesses and makes adjustments, if necessary, for any impairment of
these assets. Accumulated amortization as of June 30, 1997 and 1996, of goodwill
was $1,235,000 and $1,160,000, respectively, and of other intangible assets was
$1,272,000 and $1,132,000, respectively.
Software development costs - Software development costs incurred for
--------------------------
products to be sold are capitalized only after establishing technological
feasibility. Capitalized software is amortized over the greater of straight-line
method over the estimated economic life of the product, ranging between three
and five years, or the ratio that current revenues
26
<PAGE>
bear to the total of current and estimated future revenue stream on an
individual product basis. At the end of each quarter, the Company re-evaluates
the estimates of future revenues and remaining economic life of products for
which software costs have been capitalized, and, if required under SFAS 86,
writes-down the carrying values to net realizable value. Accumulated
amortization as of June 30, 1997 and 1996, was $103,000 and $0, respectively.
Revenue recognition - Service revenues result from contracts with various
-------------------
government agencies and private industry. Revenues on cost plus fee and fixed
price contracts are recognized using the percentage of completion method
generally determined on the basis of cost incurred to date as a percentage of
estimated total cost. Revenues on time and materials contracts are recognized at
contractual rates as labor hours and materials are expended. Losses are
recognized in the period in which they become determinable.
Costs incurred in excess of current contract funding are deferred when
management believes they are realizable through subsequent additional funding.
No revenues are recognized related to such costs which are included in unbilled
reimbursable costs and fees in the accompanying consolidated balance sheets.
Retirement plans - The Company has a defined contribution deferred
----------------
income plan covering substantially all of its employees. The plan provides that
the Company may make pension and employee deferred matching contributions for
the benefit of employees. The amount of any such contributions is at the
discretion of the Board of Directors. The total expense under the deferred
income plan was approximately $3,785,000, $3,842,000 and $3,694,000 in 1997,
1996 and 1995, respectively.
The Company has an unfunded defined benefit pension plan for directors who
are not employees of the Company. After termination as a director for any
reason, a director will receive the then-current directors' retainer fee for the
lesser of 15 years or life. Directors may also elect to receive a lump sum or
other actuarial equivalent of the foregoing benefit. Directors achieve 50%
vesting after five years of service, with annual increases of 10%, until full
vesting is achieved after 10 years of service. However, in the event of a change
in control, directors immediately become fully vested. The total expense charged
under the defined benefit pension plan was approximately $53,000, $50,000 and
$50,000 in 1997, 1996 and 1995, respectively. The present value of the projected
benefit obligation is approximately $144,500 and $191,800 at June 30, 1997 and
1996, respectively.
Income taxes - The Company accounts for income taxes under an asset and
------------
liability approach that requires the recognition of deferred tax assets and
liabilities for the difference between the financial reporting and tax basis of
assets and liabilities. A valuation allowance reduces deferred tax assets when
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
Earnings per share - Earnings per common share in 1995 and 1997 were
------------------
computed based upon the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Loss per common share in 1996
did not include common equivalent shares, as the effect would be anti-dilutive.
Dilutive common
27
<PAGE>
equivalent shares consist of stock options calculated using the treasury stock
method. Primary and fully diluted earnings per share in each year are
approximately the same.
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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
New accounting pronouncements - SFAS No. 128, "Earnings Per Share", is
-----------------------------
effective for periods ending after December 15, 1997 (early adoption is not
permitted) and requires the Company to present a basic and diluted earnings per
share. The basic calculation is based on the weighted average number of shares
outstanding. The diluted calculation will include consideration of stock-based
compensation and the effect of the convertible debenture.
Had the Company computed earnings per share in accordance with SFAS No.
128, the results would have been as follows:
1997 1996 1995
---- ---- ----
Basic EPS:
Continuing operations 1.48 (0.08) 0.79
Net income (loss) (1.90) (1.92) 0.56
Diluted EPS:
Continuing operations 1.45 (0.08) 0.75
Net income (loss) (1.76) (1.92) 0.54
Changes in presentation - Certain amounts in the 1996 and 1995 Consolidated
-----------------------
Financial Statements have been reclassified to conform to the 1997 presentation.
(2) SALE OF REAL PROPERTY
In June 1995, the Company sold approximately 13.1 acres, including all
buildings, structures, parking areas and other improvements, located in Santa
Barbara, California for $4,300,000. The Company received 20% of the proceeds in
cash at closing and took back a promissory note, secured by a Deed of Trust, for
the remaining balance of approximately $3,400,000. The note has a maturity of
not more than 5 years, accrues interest at the rate of 7% per annum, provides
for the annual payment of both interest and principal, and has a remaining
balance of $2.0 million at June 30, 1997. The Company has included the note in
Deposits and other assets in the accompanying Consolidated Balance Sheets. The
transaction resulted in the Company recognizing a gain of approximately $900,000
in 1995 from the sale, reported in the "Indirect and Other" line item of the
1995 Consolidated Statement of Income.
28
<PAGE>
In addition to the sale of the property, the Company entered into a 15 year
lease for a portion of a new building that was built on the property site.
(3) DEBT
Long-term debt at June 30, consists of the following:
1997 1996
-------- --------
(in thousands)
Revolving credit agreement $ 19,267 $ 5,425
Term loans 4,900 5,000
Equipment financing 2,871 7,345
Convertible debenture 2,758 ---
Other 36 ---
-------- --------
Total long-term debt $ 29,832 $ 17,770
Less current portion 1,679 1,243
-------- --------
$ 28,153 $ 16,527
======== ========
The fair market value of the Company's debt instruments approximate the
carrying value.
Equipment Financing - In June 1996, the Company completed a $7.5 million
-------------------
financing of substantially all of its furniture and equipment. The loan is being
amortized over a five year period at an interest rate of 9%.
Revolving Credit Agreement and Term Loans - At June 30, 1997, the Company
-----------------------------------------
had a revolving credit agreement with its bank that provides for secured
borrowings up to $22 million. The agreement extends to January 1999, with the
bank required to provide 15 months prior written notice to terminate the
facility (absent any defaults under the agreement). The bank has provided an
additional $5 million financing under term loans due September 1, 1999. Advances
under the revolving credit agreement and the term loans accrue interest at the
bank's prime rate which was 8.5% as of June 30, 1997. The collateral under the
Amended and Restated Revolving Credit and Term Loan Agreement includes all of
the Company's assets, except for property and equipment.
The revolving credit agreement contains certain covenants, including a
material adverse change clause, which require the Company to maintain certain
minimums for earnings, tangible net worth working capital and debt ratios. The
Amended and Restated Revolving Credit and Term Loan Agreement containing the
term loan and the revolving line of credit was amended as of March 31, 1996, and
again as of June 30, 1996, to reduce various financial ratio covenant levels so
as to bring the Company into compliance with those covenants as of those dates.
29
<PAGE>
Convertible Debenture - On January 21, 1997, the Company entered into a
---------------------
Convertible Securities Subscription Agreement ("Subscription Agreement")
pursuant to which an investor purchased a $4 million 5% Convertible Debenture
due January 2000 ("Debenture").
The Debenture bears interest at a 5% rate per annum payable quarterly in
cash or, at the Company's option, the amount due may be added to the outstanding
principal due under the Debenture. The Debenture is convertible into the
Company's Common Stock at the lesser of (i) $11 per share, or (ii) 94% of the
low trade during the 3 trading days immediately preceding the date of
conversion. The investor also received a 7-year warrant to purchase 320,000
shares of the Company's Common Stock at a price of $8.47 per share ("Debenture
Warrant"). Under a related Registration Rights Agreement ("Registration Rights
Agreement"), the Company was obligated to file a registration statement with the
Securities and Exchange Commission (which registration statement has now become
effective) with respect to the Company's Common Stock into which the Debenture
is convertible and for which the Debenture Warrant is exercisable. If the
Company is in default under the Debenture, the investor may put the Debenture to
the Company at 120% of the amount outstanding. The Debenture Warrant is not
exercisable for 18 months, but becomes immediately exercisable if the Company
sells substantially all of its assets or enters into a merger or acquisition or
other similar transaction, and in such event the Debenture Warrant is repriced
at the lesser of (i) $8.47 per share, or (ii) 80% of the Transaction Value (as
defined in the Debenture Warrant), and the investor has the option to put the
Debenture to the Company at 115% of the amount outstanding. A portion of the
proceeds from the Debenture were allocated to the conversion feature and the
detachable warrants.
Annual maturities for long-term debt, including the QSI note payable, which
is included in Net liabilities resulting from Discontinued Operations in the
accompanying Consolidated Balance Sheets (see Note 11 to the Financial
Statements), for the next five years (unless extended) are as follows: 1998,
$3,661,000; 1999, $25,383,000; 2000, $2,770,000; and nothing thereafter.
(4) INCOME TAXES
The differences between the tax provision calculated at the statutory
federal income tax rate and the actual tax provision for each year are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
(in thousands)
<S> <C> <C> <C>
Tax (benefit) at statutory federal rate $ 1,115 $ (238) $ 2,404
State income taxes 151 (28) 282
Utilization of loss carryforwards --- --- (1,100)
Change in valuation reserve (11,848) 230 (1,618)
Other --- 36 32
-------- -------- --------
Benefit from income taxes $(10,582) $ --- $ ---
========= ======== ========
</TABLE>
30
<PAGE>
The primary components of temporary differences which give rise to the
Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
As of June 30,
-------------------------------
1997 1996
-------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Reserves and other nondeductible accruals $ 4,266 $ 1,887
Compensation not currently deductible 2,207 2,159
Net operating loss 26,195 20,231
AMT and general business credits 800 1,178
Other 141
Valuation reserve (17,500) (15,443)
-------- --------
Total deferred tax assets 15,968 10,153
-------- --------
Deferred tax liabilities:
Reimbursable costs and fees (3,555) (2,985)
Prepaid expenses and rent (232) (500)
Depreciation (tax over book) (410) (1,410)
Internally developed software (189) (4,258)
------- --------
Total deferred tax liabilities (4,386) (9,153)
------- --------
Net deferred tax asset $ 11,582 $ 1,000
======== ========
</TABLE>
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $64 million to reduce future federal tax liabilities of which $10
million expire in 1999, $15 million expire between 2000 and 2010, $27 million
expire in 2011, and $12 million expire in 2012.
The Company has recorded a net deferred tax asset of $11.6 million
reflecting the benefit of $26.2 million in loss carryforwards, which expire in
varying amounts between 1999 and 2012. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely than
not that all of the recorded deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.
31
<PAGE>
(5) COMMITMENTS AND CONTINGENCIES
Commitments - The Company leases all of its facilities and rents certain
-----------
equipment under lease agreements, some with inflation escalator clauses. The
minimum annual rentals due under non-cancelable leases during each of the next
five years and in total thereafter, are presented in the table below.
<TABLE>
<CAPTION>
Operating Sublease
Leases Rental Income
--------- -------------
(in thousands)
<S> <C> <C>
1998 $ 6,623 $ 435
1999 6,194 435
2000 5,672 429
2001 4,999 288
2002 4,675 187
2003 and thereafter 32,752 --
------- -------
$60,915 $ 1,774
======= =======
</TABLE>
Rent expense under operating leases was $ 7,367,000, $6,643,000 and
$6,181,000 net of sublease income of $555,000, $477,000 and $395,000, in 1997,
1996 and 1995, respectively.
As of June 30, 1997, the Company had employment agreements with 13
employees providing for severance payments if employment terminates after a
change of control, and the maximum amount payable under these arrangements was
approximately $2,266,080. Subsequent to June 30, 1997, the number of employees
and the maximum change of control severance payments were increased to 15 and
$3,394,922, respectively.
(6) ACCOUNTS RECEIVABLE AND UNBILLED REIMBURSABLE COSTS AND FEES
A summary of U.S. government and non-U.S. government accounts receivable
and unbilled reimbursable costs and fees is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Accounts receivable, net of reserves of
$41 in 1997 and $0 in 1996 -
U.S. government $ 23,420 $ 24,057
Non-U.S. government 1,667 2,039
-------- --------
$ 25,087 $ 26,096
======== ========
Unbilled reimbursable costs and fees,
net of reserves of $4,594 in 1997
and $3,691 in 1996 -
U.S. government $ 3,646 $ 3,805
Non-U.S. government 430 209
-------- --------
$ 4,076 $ 4,014
======== ========
</TABLE>
32
<PAGE>
Invoices released in July that relate to June activity were $10,736,000 and
$9,863,000 for 1997 and 1996, respectively, and are reflected in accounts
receivable in the accompanying financial statements.
The components of unbilled reimbursable costs and fees are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ------
(in thousands)
<S> <C> <C>
Retainages billable upon completion of contract $ 2,301 $ 1,901
Unbilled direct costs, fee and indirect costs incurred
in excess of provisional billing rates 501 215
Costs incurred in excess of contractual authorization,
billable upon execution of a contract or contractual
amendment to increase funding 1,274 1,898
-------- --------
$ 4,076 $ 4,014
======= ========
</TABLE>
At June 30, 1997, unbilled reimbursable costs and fees expected to be
collected after one year were approximately $2,278,000.
Costs incurred by the Company in the performance of U.S. government
contracts are subject to audit by the Defense Contract Audit Agency (DCAA). In
the opinion of management, the final settlement of these costs will not result
in significant adjustments to recorded amounts.
(7) RELATED PARTY TRANSACTIONS
Through December 31, 1995, one of the Company's directors was of
counsel to a law firm which serves as counsel for the Company. Fees for legal
services rendered by the law firm to the Company aggregated $52,000 and $83,000
in 1996 and 1995, respectively.
The chairman and chief executive officer of Mercantile Bankshares
Corporation (Mercantile) is a member of the Company's Board of Directors.
Mercantile has entered into a revolving credit agreement with the Company (see
Note 3 for discussion).
In January 1997, the Company arranged for up to $22 million in financing,
consisting of a $4 million convertible debenture with the Halifax Fund, L.P.
("Halifax") and an $18 million equity line with Cripple Creek Securities, LLC
("Cripple Creek"). The investment manager for Halifax and the sole member of
Cripple Creek is The Palladin Group, L.P. ("Palladin"), of which one of the
Company's directors was a special limited partner until June 30, 1997. In
addition, the same director is the general partner of Ramius Capital Group,
L.P., which until June 30, 1997 was an affiliate of Palladin.
33
<PAGE>
(8) STOCK-BASED COMPENSATION PLANS
At June 30, 1997, the Company has seven stock-based compensation plans, as
follows (and more fully described below): 1985 Employee Stock Option Plan; 1994
Employee Stock Option Plan; 1996 Employee Stock Option Plan; 1996 Officers Stock
Option Plan; Cash Compensation Replacement Plan; Directors Fee Replacement Plan;
and Employee Stock Purchase Plan. The Company uses the intrinsic value method
and applies APB Opinion 25 and related interpretations in accounting for its
plans. Had compensation cost for the Company's seven stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of FASB Statement 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below. (These pro forma amounts may not be indicative of
such effects in future years.):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
As Pro As Pro
Reported Forma Reported Forma
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Net income (loss) (in thousands) $(17,750) $(19,562) $(17,637) $(18,579)
Earnings Per Share Amounts
- --------------------------
Net income (loss) $ (1.87) $ (2.06) $ (1.92) $ (2.03)
</TABLE>
Under the 1985 Employee Stock Option Plan ("1985 Plan"), no further options
may be granted, but 136,263 options remain outstanding as of June 30, 1997.
Under the 1994 Employee Stock Option Plan ("1994 Plan"), up to 750,000
shares may be issued pursuant to exercise of options. Of that amount, 550,000
shares may be issued to officers of the Company. As of June 30, 1997, a total of
5,095 shares have been issued under the 1994 Plan (all of them to officers), and
726,902 options are outstanding, of which 541,854 are held by officers.
Under the 1996 Employee Stock Option Plan ("1996 Employee Plan"), up to
140,000 shares may be issued to non-officer employees pursuant to exercise of
options. As of June 30, 1997, no shares have been issued under the 1996 Employee
Plan, and 81,750 options are outstanding.
Under the 1996 Officers Stock Option Plan ("1996 Officers Plan"), up to
300,000 shares may be issued to officers pursuant to exercise of options. As of
June 30, 1997, no shares have been issued under the 1996 Officers Plan, and
111,375 options are outstanding. (The 1996 Employee Plan and the 1996 Officers
Plan are sometimes referred to collectively as the "1996 Plans".)
Under the Employee Stock Purchase Plan, participating employees during a
quarter have a "look back" option to purchase shares at 85% of the lower of the
stock price on the first trading day or the last trading day of the quarter.
Under the 1985, 1994 and 1996 Plans, options vest ratably over a four year
period, although options issued to the CEO, Chairman and Vice Chairman vest in 6
months, and options issued to the Chairman and Vice Chairman are immediately
exercisable in the event of a change in control. Options have a 10-year term and
are issued at the fair market value
34
<PAGE>
on the date of grant, and therefore, under the intrinsic value method, no
compensation is recorded in the Statement of Income.
Under the Company's Directors Fee Replacement Plan, outside directors may
elect to receive stock and/or non-qualified options in lieu of annual fees
and/or other compensation. Options are immediately exercisable. Options remain
exercisable for 3 years after a participant ceases to be a director. As of June
30, 1997, options for 49,985 shares are exercisable. A separate plan permits
outside directors to receive their fees in the form of phantom stock, but to
date, no phantom stock has been awarded. Compensation cost recognized under the
Directors Fee Replacement Plan for the years ended June 30, 1997, June 30, 1996
and June 30, 1995 equaled $112,395, $117,900 and $82,033, respectively.
Participants in the Company's Cash Compensation Replacement Plan are
limited to officers of the Company. Under the Plan, participating officers
forego cash compensation (up to 25% of salary and up to 100% of bonus) to
purchase non-qualified options at a 20% discount. The options are immediately
exercisable as to 80% of the shares, with the remainder becoming exercisable in
increments over a four year period. Options remain exercisable for 3 years after
an officer's termination as an employee. As of June 30, 1997, options for 35,639
shares are exercisable. Compensation cost recognized under the Cash Compensation
Replacement plan for the years ended June 30,1997, June 30, 1996 and June 30,
1995 equaled $103,029, $359,432 and $122,781, respectively.
A summary of the status of the Company's stock options as of June 30, 1997,
1996 and 1995 and changes during the year ended on those dates is presented
below (shares in thousands):
1985, 1994 and 1996 Employee and Officer Stock Option Plans
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding @
beginning of year 855,661 $18.58 829,745 $9.04 701,688 $ 4.95
Granted 518,771 $13.59 415,011 $25.20 312,040 $15.32
Exercised (83,655) $ 6.02 (373,595) $4.89 (161,795) $ 3.58
Canceled (157,237) $17.15 (15,500) $15.35 (22,188) $ 7.68
--------- --------- --------
Outstanding @
end of year 1,133,540 $17.42 855,661 $18.58 829,745 $ 9.04
========= ========= ========
Options exercisable
at year end 292,165 $16.20 166,286 $18.90 340,946 $ 5.44
========= ========= ========
Options available
for future grant 172,053 95,337 304,848
========= ========= ========
Weighted Average
fair value of options
granted during the
year $ 6.66 $ 9.16
========= =========
</TABLE>
35
<PAGE>
Directors Fee Replacement Plan & Officers Cash Compensation Replacement Plan
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding @
beginning of year 59,924 $3.59 41,503 $1.96 47,726 $0.74
Granted 29,906 $2.40 22,982 $6.92 18,932 $3.61
Exercised (20) $9.43 (4,561) $5.53 (25,155) $1.46
Canceled --- --- --- --- --- ---
------- ------- -------
Outstanding @
end of year 89,810 $3.20 59,924 $3.59 41,503 $1.96
======= ======= =======
Options exercisable
at year end 82,628 $3.05 54,117 $3.38 39,246 $1.94
======= ======= =======
Options available
for future grant 419,503 459,858 482,980
======= ======= =======
Weighted Average fair
value of options
granted during the
year $ 7.98 $ 22.78
======= =======
</TABLE>
Under the Directors Fee Replacement Plan, options expire 3 years after the
optionee ceases to be a director. Under the Cash Compensation Replacement Plan,
options expire 3 years after the optionee ceases to be an employee. As of June
30, 1997, 2,041 and 10,560 of the outstanding shares expire in FY 1999 and FY
2000, respectively. As of June 30, 1997, 1,543 and 9,522 of the exercisable
shares expire in FY 1999 and FY 2000, respectively.
The fair value of each option granted during each year is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions for fiscal 1997 and 1996, respectively, (a) no expected dividends
(b) expected volatility of 50% and 44%, (c) risk free interest rate of 6.5% and
6.25%, and (d) expected life of 5 and 3 years.
The following table summarizes information about stock options outstanding
at June 30, 1997 (shares in thousands):
1985, 1994 and 1996 Employee and Officer Stock Option Plans
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.13 - $ 7.31 201,375 8.3 $ 4.77 23,875 $ 7.15
$ 9.00 - $11.25 20,500 1.6 $ 9.68 11,500 $ 9.65
$12.38 - $15.44 201,000 7.2 $15.30 124,250 $14.71
$16.00 - $41.06 710,665 8.7 $21.84 132,540 $19.81
--------- --- ------ ------- ------
$ 4.13 - $41.06 1,133,540 8.2 $17.42 292,165 $16.20
</TABLE>
36
<PAGE>
Directors Fee Replacement Plan & Officers Cash Compensation Replacement Plan
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ -------------------------------
Weighted Weighted
Range of Number Average Number Average
Exercise Outstanding Exercise Exercisable Exercise
Prices at 6/30/97 Price at 6/30/97 Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ .10 - $ 3.77 64,725 $1.87 61,727 $1.88
$ 5.07 - $ 7.24 18,838 $5.86 15,506 $5.85
$ 8.57 - $ 9.43 6,246 $8.88 5,395 $8.89
------ ----- ------ -----
$ .10 - $ 9.43 89,809 $3.20 82,628 $3.05
</TABLE>
Employee Stock Purchase Plan - Employees may purchase stock at a discount
----------------------------
through payroll deduction under the Company's Employee Stock Purchase Plan. The
purchase price of the shares is the lower of 85% of the fair market value of the
stock on the first or the last day of the quarterly offering period. The Company
sold 65,871, 25,304 and 7,395 shares of common stock to its employees during the
years ended June 30, 1997, June 30, 1996 and June 30, 1995, respectively. The
weighted average fair value of those purchase rights granted in 1997 and 1996
was approximately $1.89 and $5.82 per share.
During the first quarter of FY98, the Board of Directors approved a plan to
allow certain employees to reprice their options at the then current fair value
in exchange for a reduced number of options. Employee elections under this
program are scheduled to be made during the second quarter of fiscal year 1998.
The Company's current policy allows for the acceptance of mature shares of
the Company's stock at market value in lieu of cash for the proceeds due upon
exercise of the stock options and for tax withholdings due from the employee.
Furthermore, the Company accepts shares issuable upon exercise at their fair
market value in lieu of cash for the tax withholdings. The shares received are
retired and are reflected as reductions in common stock and paid-in capital.
(9) ACQUISITION
In the second quarter of fiscal 1996, the Company acquired substantially
all of the assets of Quintessential Solutions, Inc. (QSI) for a purchase price
of approximately $3.9 million. The purchase price consists of the initial cash
payments of $2,190,000 and deferred payments of $600,000 due November 1996 and
$1,400,000 due November 1997. The purchase price was allocated primarily to
software development cost. If the purchase had occurred at the beginning of
fiscal 1996 or fiscal 1995, there would have been no material impact on the
Company's results of operations. Because of a dispute with QSI, the Company did
not make the November 1996 payment.
(10) COMMON STOCK
Purchase Rights - The Company has a Shareholder Rights Plan under which a
---------------
dividend of one common stock purchase right (right) is automatically issued for
each share of the Company's common stock. The rights are not exercisable or
transferable apart from the common stock until ten business days after a person
has acquired beneficial ownership
37
<PAGE>
of 25% or more of the common stock, or commences, or announces an intention to
commence, a tender offer for 25% or more of the common stock. Separate
certificates for the rights will be mailed to holders of the common stock as of
such date, and each right will entitle the holder thereof to buy one share of
common stock at an exercise price of $100. However, if any person or group
becomes the beneficial owner of 25% or more of the stock other than pursuant to
an offer for all shares which the independent Directors of the Company determine
is fair to and otherwise in the best interest of the Company and its
shareholders, each right not owned by such person or group will entitle the
holder to purchase, at the exercise price of the rights, that number of shares
of common stock of the Company (or other consideration) which would have a
market value of two times the exercise price of the right. Similarly, in the
event that the Company is a party to a merger or other business combination
transaction, each right will entitle the holder to purchase, at the exercise
price of the rights, that number of shares of common stock of the acquiring
company which would have a market value of two times the exercise price of the
right. The rights are redeemable at $.05 per right prior to the tenth business
day following the public announcement that a person has acquired beneficial
ownership of 25% of the common stock. Upon redemption, the right to exercise the
rights will terminate. The rights expire on December 31, 2005.
Structured Equity Line Financing - On January 21, 1997, the Company entered
--------------------------------
into a Structured Equity Line Flexible Financing Agreement ("Equity Line
Agreement") whereby an investor may purchase up to $18 million in the Company's
Common Stock over a 3 1/2 year period beginning July 1, 1997. Under the Equity
Line Agreement, the investor may, but is not required to, purchase up to $3
million of the Company's Common Stock during the 6 month period beginning July
1, 1997. For the 3 years after that initial 6-month period, the Company can
require the investor to purchase up to $3 million of the Common Stock per
quarter up to an aggregate maximum of $18 million under the Equity Line
Agreement. The purchase price is equal to 94% of the low trade price during the
3 trading days immediately preceding the notice of purchase by the investor. The
investor, however, may not purchase Common Stock if such low trade price is less
than $4 per share. If the Company issues less than $5 million of its Common
Stock under the Equity Line Agreement, it must pay the investor up to $300,000
as liquidated damages. The investor also received a 7-year Warrant to purchase
125,000 shares of the Company's Common Stock at a price of $8.47 per share
("Equity Line Warrant"). If the Company elects to issue more than $5 million,
the Company will issue an additional 7-year warrant for the purchase of 75,000
shares of the Company's Common Stock ("Additional Equity Line Warrant") at a
price equal to 140% of the price of the Common Stock at the time of the issuance
of the Additional Equity Line Warrant. Under a related Registration Rights
Agreement ("Registration Rights Agreement"), the Company was obligated to file a
registration statement with the Securities and Exchange Commission with respect
to the Company's Common Stock for which the Equity Line Warrant and the
Additional Line Warrant (collectively, the "Equity Line Warrants") are
exchangeable. The Equity Warrant is not exercisable for 18 months, but becomes
immediately exercisable if the Company sells substantially all of its assets or
enters into a merger or acquisition or other similar transaction, and in such
event is repriced at the lesser of (i) $8.47, or (ii) 80% of the Transaction
Value (as defined in the Equity Line Warrant). The Additional Equity Line
Warrant, when issued, will contain provisions similar to the Equity Line
Warrant. The investor's obligation to purchase under the Equity Line Agreement
is subject to various conditions, including (i) the effectiveness of a
registration statement with respect to the
38
<PAGE>
underlying shares (which registration statement is now effective), (ii)
limitations based on the price and volume of the Company's Common Stock, and
(iii) the percentage of the Common Stock beneficially owned by the investor from
time to time.
(11) DISCONTINUED OPERATIONS
On February 28, 1997, the Company committed itself to a formal plan of
disposition for two prior business segments, its Telecommunications and Advanced
Products Divisions. The plan of disposition for the OSU and NetworkVUE business
units within the Telecommunications Division and the Commercial Information
Solutions business unit within the Advanced Products Division was the cessation
of on-going operations and the sale of the residual intellectual property
associated with those business units. The plan of disposition of the GRC
Instruments/Dynatup and Vindicator business units of the Advanced Products
Division was the sale of those businesses.
Consequently, the Company has reported its results of operations for the
Telecommunications and Advanced Products Divisions as discontinued operations.
The Company's information technology and professional services business
(formerly known as the Professional Services Operations) constitutes its
continuing operations.
Revenues generated from discontinued operations amounted to $5.7 million,
$7.5 million and $5.0 million for the fiscal years ended 1997, 1996 and 1995,
respectively. The revenue was primarily derived from the Advanced Products
Division and the Telecommunications Division as follows: $4.6 million and $1.1
million in 1997; $5.5 million and $2.0 million in 1996; and $4.8 million and
$200 thousand in 1995, respectively. Loss from operations from the measurement
dates to June 30, 1997 were $1.7 million for the Telecommunications Division and
$1.5 million for the Advanced Products Division.
On April 30, 1997, the Company sold the assets and liabilities of its GRC
Instruments/Dynatup business for $2.0 million in cash.
On June 5, 1997, the Company sold the assets of its Vindicator security
business unit within its discontinued Advanced Products Division. The sale was
for book value of approximately $700 thousand, with payment of $100 thousand at
closing and $150 thousand 90 days thereafter, both of which payments have been
received by the Company. The remainder of the purchase price is payable at a
rate of 6% of sales, but in all events, any remaining balance is payable in a
lump sum on December 31, 1998.
On June 27, 1997, the Company sold the assets and liabilities of its
Optical Service Unit ("OSU") business unit within its discontinued
Telecommunications Division. The sale was for a cash payment of $1.5 million
payable in part at, and the remainder shortly after, closing, both of which
payments have been received by the company, and a royalty schedule on sales of
the OSU unit or derivatives over the next 10 years.
The operations of the NetworkVUE business unit within the Company's
discontinued Telecommunications Division have been substantially curtailed, with
only maintenance of the NetSolve component of NetworkVUE being continued through
September 30, 1997, at which time the remaining business is expected to be shut
down.
39
<PAGE>
The operations of the Commercial Information Systems ("CIS") component of
the Company's discontinued Advanced Products Division have been substantially
curtailed and are planned to be shut down in October 1997.
Summarized balance sheet data related to the discontinued operations is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Net assets to be disposed of:
Current assets $ 417 $ 6,767
Property, plant & equipment, net 1,035 2,572
Deferred software, net --- 10,749
Other 44 60
--------- --------
1,496 20,148
--------- --------
Current liabilities 622 3,584
--------- --------
Net assets to be disposed of 874 16,564
Proceeds receivable from sale of divisions 400 ---
Provision for losses through disposition (3,883) ---
QSI obligation (1,982) (1,822)
--------- --------
Net assets (liabilities) related to discontinued
operations $ (4,591) $ 14,742
========= ========
</TABLE>
The net present value of the Company's $2.0 million obligation to
Quintessential Solutions Inc. (QSI) was incurred with the acquisition of the
rights to QSI's operating software. Payments of $600,000 and $1,400,000 are due
in November 1996 and November 1997, respectively. Because of a dispute with QSI,
the Company did not make the November 1996 payment.
Discontinued operations include management's best estimates of the net
amounts expected to be incurred to dispose of its Telecommunications and
Advanced Products businesses. The amounts the Company will ultimately incur
could differ significantly in the near term from the amounts assumed in arriving
at the loss on disposal of the discontinued operations.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
41
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) EXHIBITS
See "Index to Exhibits" hereinafter contained and incorporated
herein by reference.
(b) SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
The following financial information is filed herewith on the
pages indicated:
Schedule II - Valuation and Qualifying Accounts (Page 45)
(c) REPORTS ON FORM 8-K
None.
42
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GRC INTERNATIONAL INC.
Date: September 25, 1997 By: /s/ Jim Roth
------------------ -------------------------------
Jim Roth
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ronald B. Alexander his attorney-in-fact, with
the power of substitution, for him in any and all capacities, to sign any
amendments to this Report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the Securities and Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Date: September 25, 1997 By: /s/ Jim Roth
------------------ -------------------------------
Jim Roth
President and Chief Executive
Officer
Date: September 25, 1997 By: /s/ Ronald B. Alexander
------------------ -------------------------------
Ronald B. Alexander
Senior Vice President-Finance,
Chief Financial Officer and
Treasurer
Date: September 25, 1997 By: /s/ Joseph R. Wright, Jr.
------------------ -------------------------------
Joseph R. Wright, Jr., Chairman
of the Board of Directors
43
<PAGE>
Date: September 25, 1997 By: /s/ H. Furlong Baldwin
------------------ -------------------------------
H. Furlong Baldwin, Director
Date: September 25, 1997 By: /s/ Frank J.A. Cilluffo
------------------ -------------------------------
Frank J.A. Cilluffo, Director
Date: September 25, 1997 By: /s/ Peter A. Cohen
------------------ -------------------------------
Peter A. Cohen, Vice Chairman
of the Board of Directors
Date: September 25, 1997 By: /s/ Leslie B. Disharoon
------------------ -------------------------------
Leslie B. Disharoon, Director
Date: September 25, 1997 By: /s/ Charles H.P. Duell
------------------ -------------------------------
Charles H.P. Duell, Director
Date: September 25, 1997 By: /s/ Edward C. Meyer
------------------ -------------------------------
Edward C. Meyer, Director
Date: September 25, 1997 By: /s/ George R. Packard
------------------ -------------------------------
George R. Packard, Director
Date: September 25, 1997 By: /s/ Herbert Rabin
------------------ -------------------------------
Herbert Rabin, Director
Date: September 25, 1997 By: /s/ E. Kirby Warren
------------------ -------------------------------
E. Kirby Warren, Director
44
<PAGE>
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration Statements
Nos. 33-1046, 33-39512, 33-39513, 33-52536, 33-52538, 33-87981 and 33-87982 of
GRC International, Inc. on Form S-8 of our report dated August 13, 1997,
appearing in this Annual Report on Form 10-K of GRC International, Inc. for the
year ended June 30, 1997.
DELOITTE & TOUCHE LLP
McLean, Virginia
September 25, 1997
45
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other from at End of
Description of Period Expenses Accounts/(A)/ Reserves/(B)/ Period
- ----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997
Reserves for uncollectible receivables -
Deducted from accounts receivable $ 5 $ 36 $ --- $ --- $ 41
Deducted from unbilled reimbursable
costs and fees 3,691 855 176 (128) 4,594
-------- --------- --------- --------- --------
$ 3,696 $ 891 $ 176 $ (128) $ 4,635
======== ========= ========= ========= ========
Year ended June 30, 1996
Reserves for uncollectible receivables -
Deducted from accounts receivable $ --- $ 5 $ --- $ --- $ 5/(c)/
Deducted from unbilled reimbursable
costs and fees 3,821 496 455 (1,081) 3,691
-------- --------- --------- --------- --------
$ 3,821 $ 501 $ 455 $ (1,081) $ 3,696
======== ========= ========= ========= ========
Year ended June 30, 1995
Reserves for uncollectible receivables -
Deducted from accounts receivable $ 48 $ 3 $ --- $ (51) $ ---
Deducted from unbilled reimbursable
costs and fees 3,606 1,051 (197) (639) 3,821
-------- --------- --------- --------- --------
$ 3,654 $ 1,054 $ (197) $ (690) $ 3,821
======== ========= ========= ========= ========
</TABLE>
/(A)/Reductions of revenue for potentially nonrecoverable costs.
/(B)/Write off of uncollectible accounts and cost against reserves,
net of recoveries.
/(c)/Relates to receivable from discontinued operations.
46
<PAGE>
INDEX TO EXHIBITS
(Exhibit Numbers correspond to Exhibit Table,
Regulation S-K, Item 601)
<TABLE>
<CAPTION>
Exhibit
Number Page
- ------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the 1994 Form 10-K)
3.2 Bylaws
10.1* 1985 Employee Stock Option Plan (incorporated by reference to Exhibit
10.1 to the 1996 Form 10-K)
10.2* 1994 Employee Option Plan
10.3* 1996 Officers Stock Option Plan
10.4* Cash Compensation Replacement Plan
10.5* Incentive Compensation Plan (incorporated by reference to Exhibit
10.7 to the 1995 Form 10-K)
10.6* Directors Fee Replacement Plan
10.7* Directors Phantom Stock Plan (incorporated by reference to Exhibit
10.7 to the 1996 Form 10-K)
10.8* Directors Retirement Plan
10.9 Amended and Restated Revolving Credit and Term Loan Agreement ("Loan
Agreement"), with Exhibits, with Mercantile-Safe Deposit & Trust
Company ("Mercantile"), dated as of February 12, 1996, First
Confirmation and Amendment thereto dated May 15, 1996, Second
Confirmation and Amendment thereto dated July 18, 1996, and Third
Confirmation and Amendment thereto dated September 24, 1996
(incorporated by reference to Exhibit 10.9 to the 1996 Form 10-K)
10.10 Fourth Confirmation and Amendment dated February 7, 1997 to Loan
Agreement between the Company and Mercantile (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended December 31, 1996)
10.11 Fifth Confirmation and Amendment dated April 30, 1997 to Loan
Agreement between the Company and Mercantile (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended March 31, 1997)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.12 Sixth Confirmation and Amendment dated May 13, 1997 to Loan Agreement
between the Company and Mercantile (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended March
31, 1997)
10.13 Lease Agreement dated as of June 30, 1989, with Exhibits, between the
Company and Centennial III Limited Partnership (incorporated by
reference to Exhibit 10.17 to the 1989 Form 10-K)
10.14 Lease Amendment No. 1, with Exhibits, to Lease between the Company
and Centennial III Limited Partnership (incorporated by reference to
Exhibit 10.6 to the 1990 Form 10-K)
10.15 Lease Amendments Nos. 2, 3, 4 and 5 to Lease between the Company and
Richmond Land Corporation (as successor to Centennial III Limited
Partnership) (incorporated by referenced to Exhibit 10.12 to the 1994
Form 10-K)
10.16 Lease Amendment No. 6 to Lease between the Company and Richmond Land
Corporation (as successor to Centennial III Limited Partnership)
(incorporated by referenced to Exhibit 10.13 to the 1995 Form 10-K)
10.17 Amended and Restated Rights Agreement dated June 30, 1995 between the
Company and the American Stock Transfer & Trust Company (incorporated
by referenced to Exhibit 10.14 to the 1995 Form 10-K)
10.18* Employment Agreement between the Company and Jim Roth (incorporated
by reference to Exhibit 10.16 to the 1996 Form 10-K)
10.19* Note dated July 9, 1992, and Deed of Trust dated as of August 11,
1993, by and between the Company and Jim Roth (incorporated by
reference to Exhibit 10.15 to the 1994 Form 10-K)
10.20* Form of Employment Agreement for Gary L. Denman, Thomas E. McCabe and
Ronald B. Alexander
10.21* Form of Employment Agreement for James P. McCoy
10.22 Building Lease between the Company and Bermant Development Company
(incorporated by reference to Exhibit 10.21 to the 1995 Form 10-K)
10.23 First and Second Amendments to Building Lease between the Company and
Bermant Development Company
10.24 Convertible Securities Subscription Agreement dated as of January 21,
1997 between the Company and Halifax Fund, L.P. ("Halifax")
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q
for the quarter ended December 31, 1996)
10.25 $4,000,000 5% Convertible Debenture Due January 30, 2000 (the
"Debenture") issued by the Company to Halifax (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter
ended December 31, 1996)
10.26 320,000 Share Common Stock Purchase Warrant issued by the Company to
Halifax in connection with the Debenture (incorporated by reference
to Exhibit 10.4 to the Company's Form 10-Q for the quarter ended
December 31, 1996)
10.27 Registration Rights Agreement dated as of January 30, 1997 between
the Company and Halifax relating to the Debenture (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter
ended December 31, 1996)
10.28 Structured Equity Line Flexible Financing Agreement ("Equity Line
Agreement") dated as of January 21, 1997 between the Company and
Cripple Creek Securities, LLC ("Cripple Creek") (incorporated by
reference to Exhibit 10.6 to the Company's Form 10-Q for the quarter
ended December 31, 1996)
10.29 125,000 Share Common Stock Purchase Warrant issued by the Company to
Cripple Creek in connection with the Equity Line Agreement
(incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q
for the quarter ended December 31, 1996)
10.30 Registration Rights Agreement dated as of January 30, 1997 between
the Company and Cripple Creek relating to the Equity Line Agreement
(incorporated by reference to Exhibit 10.8 to the Company's Form 10-Q
for the quarter ended December 31, 1996)
11 Statement of Computation of Earnings Per Share
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP (included on Page 44 of Form 10-K)
24 Powers of Attorney (included as a part of signature pages to the Form
10-K)
27 Financial Data Schedule
</TABLE>
* Indicates management contract or compensatory plan.
<PAGE>
Exhibit 3.2
-----------
BYLAWS OF GRC INTERNATIONAL, INC.
--------------------------------
ARTICLE I. OFFICES
------------------
Section 1. Registered Office
-----------------
The registered office of GRC International, Inc. in the State of Delaware shall
be located at 32 Loockerman Square, Suite L-100, City of Dover, County of Kent.
The name of its registered agent in charge thereof shall be the United States
Corporation Company.
Section 2. Other Offices
-------------
The Corporation shall maintain its principal and corporate offices in the State
of Virginia, and may also have an office at such other place or places, either
within or without the State of Delaware, as may be designated by the Board of
Directors.
ARTICLE II. SHAREHOLDERS' MEETINGS
----------------------------------
Section 1. Place of Meeting
----------------
All meetings of the shareholders shall be held at the principal office of the
Corporation in the State of Virginia, or such other place as may be designated
from time to time by the Board of Directors.
Section 2. Annual Meeting
--------------
The annual meeting of shareholders shall be held on the first Thursday of
November each year, if not a legal holiday, and if a legal holiday, then on the
next succeeding business day, at the hour of 1:30 p.m. In the event the annual
meeting of shareholders is not held on the date above specified, the Board of
Directors shall cause a meeting in lieu thereof to be held as soon thereafter as
is convenient, and any business transacted or election held at such meeting
shall be as valid as if the meeting had been held on the date above specified.
Section 3. Special Meetings
----------------
Special meetings of the shareholders may be called by the Board of Directors, a
majority of the directors then in office, although less than a quorum, or the
sole remaining director. The call shall designate the place and the time of the
meeting.
Section 4. Notice of Meetings
------------------
Notice of meetings, annual or special, shall be given in writing to shareholders
entitled to vote by the Secretary or Assistant Secretary, or if there be no such
officers, or in the case of neglect or refusal, by any director or shareholder.
Such notices shall be sent to the shareholder's address appearing on the
books of the Corporation for the purpose of notice, not less than ten days
before said meeting.
<PAGE>
Notice of any meeting of shareholders shall specify the place, the day, and the
hour of meeting, and in case of a special meeting, the general nature of the
business to be transacted.
When a meeting is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting. Save as aforesaid, it
shall not be necessary to give any notice of the adjournment or of the business
to be transacted at an adjourned meeting other than by announcement at the
meeting at which such adjournment is taken.
Section 5. Consent to Shareholders Meetings
--------------------------------
The transaction of any meeting of shareholders, however called and noticed,
shall be valid as though had at a meeting duly held after regular call and
notice, if a quorum be present either in person or by proxy, and if, either
before or after the meeting, each of the shareholders entitled to vote, not
present in person or proxy, signs a written waiver of notice, or a consent to
the holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents, or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 6. Quorum
------
The holders of a majority of the shares entitled to vote thereat, present in
person or represented by proxy, shall be requisite and shall constitute a quorum
at all meetings of the shareholders for the transaction of business, except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. If, however, such majority shall not be present or represented at any
meeting of the shareholders, the shareholders entitled to vote thereat, present
in person or by proxy, shall have the power to adjourn the meeting from time to
time, until the requisite amount of voting shares shall be present. At such
adjourned meeting at which the requisite amount of voting shares shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 7. Voting Rights; Cumulative Voting
--------------------------------
Only persons in whose names shares entitled to vote stand on the stock records
of the Corporation on the day of any meeting of shareholders, and unless some
other day be fixed by the Board of Directors for the determination of
shareholders of record, then on such other day, shall be entitled to vote at
such meeting.
Every shareholder entitled to vote shall be entitled to one vote for each of
said shares. It is further provided, however, that at all elections of directors
of this Corporation, each holder of common stock shall be entitled to as many
votes as shall equal the number of votes which (except for this provision as to
cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of common stock multiplied by the number of directors
to be elected, and he may cast all of his votes for a single nominee for
director or may distribute them among the number to be voted for, or for any two
or more of them as he may see fit.
Section 8. Proxies
-------
Every shareholder entitled to vote may do so, either in person or by written
proxy, executed in accordance with the laws of the State of Delaware, and filed
with the Secretary or Assistant Secretary of the Corporation.
-2-
<PAGE>
ARTICLE III. DIRECTORS; MANAGEMENT
----------------------------------
Section 1. Powers
------
Subject to the limitations of the Certificate of Incorporation, of the Bylaws
and the laws of the State of Delaware, as to action to be authorized or approved
by the shareholders, all corporate powers shall be exercised by or under
authority of, and the business and affairs of this Corporation shall be
controlled by the Board of Directors.
Section 2. Number
------
The number of directors constituting the entire Board shall not be less than 7
or more than 14 as fixed from time-to-time by vote of a majority of the entire
Board; provided, however, that the number of directors shall not be reduced so
as to shorten the term of any director at the time in office; and provided
further, that the number of directors constituting the entire Board shall be 11
unless otherwise fixed by a majority of the entire Board.
Section 3. Classes of Directors
--------------------
The directors shall be divided into three classes. If the total number of
directors is not exactly divisible by three, one class, and if necessary, two
classes, shall each contain one more director than the remaining class or
classes.
Section 4. Nominations of Directors
------------------------
Nominations for the election of directors may be made by the Board of Directors
or by any shareholder entitled to vote for the election of directors. Such
nominations shall be made by notice in writing, delivered or mailed by first
class United States mail, postage prepaid, to the Secretary of the Corporation
not less than ten (10) days and not more than one hundred twenty (120) days
prior to any meeting of the stockholders called for the election of directors,
including any annual meeting at which directors are to be elected; provided,
however, that if less than fourteen (14) days written notice of the meeting is
given to stockholders, such written notice shall be delivered or mailed, as
prescribed, to the Secretary of the Corporation not later than the close of the
fourth day following the day on which notice of the meeting was mailed to
stockholders. Notice of nominations which are proposed by the Board of Directors
shall be given by the Chairman on behalf of the Board.
Each such notice shall set forth (i) the name, age, business address, and, if
known, residence address of each nominee proposed in such notice; (ii) the
principal occupation or employment of each such nominee; (iii) the number of
shares of stock of the Corporation which are beneficially owned by each such
nominee; and (iv) the number of shares owned by any corporation or entity of
which such nominee is an officer, director, partner, employee or agent, directly
or indirectly.
The Chairman of the meeting may, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
-3-
<PAGE>
Section 5. Election of Directors
---------------------
The directors of one class shall be elected by a ballot at the annual meeting of
the shareholders, to serve for three years, and until their successors are
elected and have qualified. Their term of office shall begin immediately after
election.
Elections for directors in the first class shall be held at the first annual
meeting of the shareholders. Directors of the second class shall be elected at
the second annual meeting of shareholders, and directors of the third class
shall be elected at the third annual meeting of shareholders.
Section 6. Vacancies
---------
Any vacancy or vacancies in the Board of Directors for any reason, and any newly
created directorships, may be filled by the Board of Directors.
Vacancies in the Board of Directors may be filled by a majority of the remaining
directors though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office for the remainder of the term and until
the next election of the class for which such director shall have been chosen
and until their successors shall be elected and qualified.
If any director tenders his resignation to the Board of Directors, to take
effect at a future time, the Board shall have the power to elect a successor to
take office at such time as the resignation shall become effective.
No reduction of the number of directors shall have the effect of removing any
director prior to the expiration of his term of office.
Section 7. Meetings
--------
Meetings of the Board of Directors shall be held at the principal office of the
Corporation in Vienna, Virginia, or as designated from time to time by the Board
of Directors. Any meeting shall be valid wherever held, if held by the written
consent of all the members of the Board of Directors, given either before or
after the meeting and filed with the Secretary or Assistant Secretary of the
Corporation.
Section 8. Organization Meetings
---------------------
The organization meetings of the Board of Directors shall be held immediately
following the adjournment of the annual meeting of the shareholders.
Section 9. Other Regular Meetings
----------------------
Regular meetings of the Board of Directors shall be held on the fourth Thursday
of every other month (except that the November meeting shall be held on the
first Thursday of November) at 10:00 a.m. or else at a date and time fixed by
the Board at its last regular meeting. If said day shall fall upon a holiday,
then such meeting shall be held upon the next succeeding business day
thereafter. No notice need be given of such regular meetings.
-4-
<PAGE>
Section 10. Special Meetings - Notices
--------------------------
Special meetings of the Board of Directors for any purpose or purposes shall be
called at any time by the President, or if he is absent, or unable or refuses
to act, by any Vice President or by any two directors.
Written notice of the time and place of special meetings shall be (i)
hand-delivered to each director, or (ii) sent to each director by mail, telegram
or express courier (such as Federal Express), charges prepaid, addressed to such
director at his or her address as it is shown upon the records of the
Corporation, or if it is not so shown on such records or is not readily
ascertainable, at the place in which the meetings of directors are regularly
held. In case such notice is delivered by mail, telegram or express courier, it
shall be deposited in the United States mail or delivered to the telegram
company or express courier in the place in which the principal office of the
Corporation is located at least forty-eight (48) hours prior to the time of the
holding of the meeting. In case such notice is hand-delivered as above provided,
it shall be so delivered at least twenty-four (24) hours prior to the time of
the holding of the meeting. Delivery as above provided shall be due, legal and
personal notice to such director.
Section 11. Waiver of Notice
----------------
When all the directors are present at any directors' meeting however called or
noticed, and sign a written consent thereto on the records of such meeting, or
if a majority of the directors are present and if those not present sign in
writing a waiver of notice of such meeting, whether prior to or after the
holding of such meeting, which said waiver shall be filed with the Secretary or
Assistant Secretary of the Corporation, the transactions thereof are as valid as
if had at a meeting regularly called and noticed.
Section 12. Action of Directors Without a Meeting
-------------------------------------
Any action required or permitted to be taken by the Board of Directors under any
provision of the Delaware law, the Certificate of Incorporation, or these
Bylaws, may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
Section 13. Quorum
------
A majority of the number of directors as fixed by the Certificate or Bylaws
shall be necessary to constitute a quorum for the transaction of business, and
the action of a majority of the directors present at any meeting at which there
is a quorum, when duly assembled, is valid as a corporate act; provided that a
minority of the directors, in the absence of a quorum, may adjourn from time to
time, but may not transact any business.
Section 14. Indemnification and Insurance
-----------------------------
a) Right to Indemnification. Each person who is made a party or is threatened to
------------------------
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or
-5-
<PAGE>
investigative, (hereinafter a "proceeding"), by reason of the fact that he, or a
person of whom he is the legal representative, (i) is or was a director or
officer of the Corporation; (ii) while serving as a director or officer of the
Corporation, also is or was serving at the request of the Corporation in a
director, officer, trustee or similar capacity for any other enterprise; or
(iii) while serving as a director, officer or employee of the Corporation, also
is or was serving at the request of the Corporation in a fiduciary,
administrative, advisory or similar capacity with respect to one or more
employee benefit plans maintained by the Corporation; shall be indemnified and
held harmless by the Corporation to the fullest extent required, permitted or
not prohibited by Delaware law, including (but not limited to) the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
awards and expenses (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement), reasonably
incurred or suffered by such person in connection therewith, and such
indemnification shall continue even if such person has ceased to be a director
or officer and shall inure to the benefit of his heirs, executors and
administrators; provided, however, except as provided in subsection 14(b)
-------- -------
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section 14 shall
be a contract right and shall include the right to be paid by the Corporation
any expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
-------- -------
requires, the payment of such expenses incurred by a director or officer in his
capacity as a director or officer in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such person is not
entitled to be indemnified under this Section 14 or otherwise. The Corporation
may, by action of its Board of Directors, provide indemnification and
advancement of expenses to employees and agents of the Corporation with the same
scope and effect as are provided to directors and officers herein.
b) Processing of Claims. A claim made by a person under this Section 14 shall be
--------------------
paid in full within thirty (30) days after such claim has been received in
writing by the Corporation, unless independent legal counsel has determined in a
letter to the Corporation, with a copy to such person, that indemnification of
such person would be prohibited, in whole or in part, under applicable law, or
that a claim for expenses shall not be paid, in whole or in part, on the grounds
that it is unreasonably high (with the amount by which such expenses are
unreasonably high stated therein). Any such determination letter given by
independent legal counsel within thirty (30) days of the filing of a claim shall
be conclusive and binding on the Corporation and on such person. If, within
thirty (30) days after the filing of such claim, the Corporation has not paid
such person the full amount of the claim or such lesser amount as determined by
independent legal counsel, such person shall have the right to commence legal
action for payment in any court having jurisdiction thereof, and in which venue
is proper.
c) Insurance.
---------
(1) Subject to the provisions of subsection (c)(2) hereof, the Corporation
hereby agrees to purchase and maintain in effect for the benefit of the
directors and officers one or more valid,
-6-
<PAGE>
binding and enforceable policies of liability insurance providing, in all
respects, coverage substantially comparable to or superior to that presently in
force.
(2) The Corporation shall not be required either to obtain or maintain such
policy or policies of insurance in effect if said insurance is not reasonably
available or if, in the reasonable business judgment of the then directors of
the Corporation, either (i) the premium cost for such insurance is substantially
disproportionate to the amount of coverage; or (ii) the coverage provided by
such insurance is so limited by exclusions that there is insufficient benefit
from such insurance.
d) Indemnification Agreements. The Board of Directors of the Corporation is
--------------------------
expressly authorized to enter into indemnification agreements, with such persons
as the Board deems appropriate, to effectuate the rights set forth in this
Section 14.
ARTICLE IV. OFFICERS
Section 1. Officers
--------
The officers shall be: Chairman of the Board; President; one or more Vice
Presidents, one of whom may be designated Executive Vice President, one of whom
may be designated Chief Operating Officer, and one or more of whom may be
designated Senior Vice President; Secretary; one or more Assistant Secretaries;
General Counsel; Treasurer; and may include an Assistant Treasurer. Such
officers shall be elected by, and hold office at the pleasure of, the Board of
Directors.
Section 2. Election
--------
After their election, the directors shall meet and organize by electing a
Chairman of the Board from their own number; a President from their own number;
one or more Vice Presidents, one of whom may be designated Executive Vice
President, one of whom may be designated Chief Operating Officer, and one or
more of whom may be designated Senior Vice President; a Secretary; one or more
Assistant Secretaries; a General Counsel; a Treasurer; and, at their discretion,
an Assistant General Counsel and/or an Assistant Treasurer. The Chairman of the
Board and the President shall be members of the Board of Directors. Any two or
more of such offices, except those of the President and Secretary or Assistant
Secretary, may be held by the same person.
Section 3. Compensation and Tenure of Office
---------------------------------
The compensation and tenure of office of all the officers of the Corporation
shall be fixed by the Board of Directors.
Section 4. Removal and Resignation
-----------------------
Any officer may be removed, either with or without cause, by a majority of the
directors at the time in office, at any regular or special meeting of the Board,
or, except in case of an officer chosen by the Board of Directors, by any
officer upon whom such power of removal may be conferred by the Board of
Directors.
-7-
<PAGE>
Any officer may resign at any time by giving written notice to the Board of
Directors or to the President, or to the Secretary or Assistant Secretary of the
Corporation. Any such resignation shall take effect at the date of receipt of
such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. Vacancies
---------
A vacancy in any office because of death, resignation, removal, disqualification
or any other cause shall be filled in the manner prescribed in the Bylaws for
regular appointments to such office.
Section 6. Chairman of the Board
---------------------
The Chairman of the Board shall be a member of the Board of Directors. He shall
preside at all meetings of the shareholders and the Board of Directors and, in
the absence or disability of the President, he shall perform all functions of
the office of the President of the Corporation. He may be a regular member of
one or more of the standing committees (except the Audit Committee) and, in any
event, he shall be an ex-officio member of all the standing committees upon
which he does not serve as a regular standing member. He shall have such powers
and duties as may be prescribed by the Board of Directors or the Bylaws.
Section 7. President
---------
The President shall be the Chief Executive Officer of the Corporation and, if no
other Chief Operating Officer is named, the Chief Operating Officer of the
Corporation, and, subject to the control of the Board of Directors or the
Chairman of the Board, the President shall have general supervision, direction
and control of the day-to-day operations of the Corporation. In the absence of
the Chairman of the Board, he shall preside at all meetings of the shareholders
and Board of Directors. He may be a regular member of one or more of the
standing committees (except the Audit Committee) and, in any event, he shall be
ex-officio a member of the Executive committees. He shall have the general
powers and duties of management usually vested in the office of President of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors and the Bylaws.
Section 8. Chief Operating Officer
-----------------------
The Chief Operating Officer shall possess the power and may perform the duties
of the President in his absence or disability and shall perform such other
duties as may be prescribed from time to time by the Board of Directors.
Section 9. Vice Presidents
---------------
The Vice Presidents shall have such powers and perform such duties as may be
assigned to them by the Board of Directors or the President. In the absence or
disability of the President and the Chief Operating Officer, the Vice President
designated by the Board or the President shall perform the duties and exercise
the powers of the President.
-8-
<PAGE>
Section 10. Secretary
---------
The Secretary shall keep, or cause to be kept, a book of minutes at the
principal office or such other place as the Board of Directors may order, of all
meetings of directors and shareholders, with the time and place of holding,
whether regular or special, and if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the
office of the Corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the shareholders and their addresses; the
number and classes of shares held by each; the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the
shareholders and of the Board of Directors required by the Bylaws or Bylaw to be
given; he shall keep the seal of the Corporation and affix said seal to all
documents requiring a seal, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 11. Assistant Secretary
-------------------
The Assistant Secretary shall have the same rights, duties, powers and
privileges as the Secretary and may act in his place and stead whenever the same
shall be necessary or desirable.
Section 12. Treasurer
---------
Unless the Board of Directors determines otherwise, the Treasurer shall be the
Chief Financial Officer of the Corporation. The Treasurer shall have general
custody of all the funds and securities of the Company and have general
supervision of the collection and disbursement of funds of the Company. He shall
endorse on behalf of the Company for collection of checks, notes, and other
obligations, and shall deposit the same to the credit of the Company in such
bank or banks or depositories as the Board of Directors may designate. He may
sign, with the President, or such other person or persons as may be designated
for the purpose of the Board of Directors, all bills of exchange or promissory
notes of the Company. He shall enter or cause to be entered regularly in the
books of the Company full and accurate account of all moneys received and paid
by him on account of the Company; shall at all reasonable times exhibit his
books and accounts to any Director of the Company upon application at the office
of the Company during business hours; and, whenever required by the Board of
Directors or the President, shall render a statement of his accounts. He shall
perform such other duties as may be prescribed from time to time by the Board of
Directors or by the Bylaws.
Section 13. Assistant Treasurer
-------------------
The Assistant Treasurer shall have all the same rights, duties, powers and
privileges as the Treasurer and may act in his place and stead whenever the same
shall be necessary or desirable.
-9-
<PAGE>
Section 14. General Counsel
---------------
The General Counsel shall advise and represent the Company generally in all
legal matters and proceedings and shall act as counsel to the Board of Directors
and its Committees. The General Counsel may sign and execute pleadings, powers
of attorney pertaining to legal matters, and any other contracts and documents
in the regular course of his duties.
Section 15. Assistant General Counsel
-------------------------
The Assistant General Counsel shall have all the same rights, duties, powers and
privileges as the General Counsel and may act in his place and stead whenever
the same shall be necessary or desirable.
ARTICLE V. CORPORATE RECORDS AND REPORTS - INSPECTION
-----------------------------------------------------
Section 1. Records
-------
The Corporation shall maintain adequate and correct accounts, books and records
of its business and properties. All such books, records and accounts shall be
kept at its principal office designated by the Bylaws, as from time to time
amended by the Board of Directors.
Section 2. Inspection
----------
All books and records provided for by the laws of the jurisdictions in which
this Corporation maintains offices shall be open to inspection of the directors
and shareholders from time to time and in the manner provided by the laws of
said states, as made applicable to foreign corporations keeping records in said
states.
ARTICLE VI. CERTIFICATES AND TRANSFER OF SHARES
-----------------------------------------------
Section 1. Certificates for Shares
Certificates for shares shall be of such form and device as the Board of
Directors may designate and shall state: the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; the par value, if any, or a statement that such shares
are without par value; a statement of liens or restrictions upon transfer or
voting, if any; if the shares be assessable, or if assessments are collectible
by personal action, a plain statement of such facts. Certificates for preferred
shares shall contain, or have appended thereto, a statement of applicable
rights, privileges, preferences and restrictions.
Every certificate for shares must be signed by the Chief Executive Officer, or
by the President or a Vice President, and by the Secretary or Assistant
Secretary, which signatures shall be affixed manually or by facsimile signatures
of such of the foregoing officers as are required to execute such certificates
in accordance with this paragraph. Before it becomes effective, each certificate
for shares authenticated by the facsimile signature shall be (i) countersigned
by a transfer agent or transfer clerk and registered by an incorporated bank or
trust company, either domestic or foreign, as a registrar of transfers, or (ii)
countersigned by a facsimile of the
-10-
<PAGE>
signature of a transfer agent or transfer clerk and registered by written
signature by an incorporated bank or trust company, either domestic or foreign,
as registrar of transfers.
Section 2. Transfer on the Books
---------------------
Upon surrender of the Secretary or Assistant Secretary or transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. Lost or Destroyed Certificates
------------------------------
No certificate for shares of stock of this Corporation shall be issued in place
of any certificate alleged to have been lost, destroyed or mutilated, except
upon such terms and conditions, including indemnification of the Corporation, as
the Board of Directors shall determine.
Section 4. Transfer Agents and Registrars
------------------------------
The Board of Directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, which shall be an incorporated bank or trust
company, either domestic or foreign, who shall be appointed at such times and
places as the requirements of the Corporation may necessitate and the Board of
Directors may designate.
Section 5. Closing Stock Transfer Books
----------------------------
The Board of Directors may close the transfer books at their discretion for a
period not exceeding thirty (30) days preceding any meeting, annual or special,
of the shareholders. Upon declaration of a dividend, the transfer books shall
not be closed but a record date will be set by the Board of Directors upon which
the transfer agent will take a record of all shareholders entitled to the
dividend without actually closing the books for transfer of stock.
ARTICLE VII. CORPORATE SEAL
---------------------------
The corporate seal shall be circular in form, and shall have inscribed thereon
the name of the Corporation, its year of incorporation and the word DELAWARE.
ARTICLE VIII. AMENDMENTS
------------------------
Section 1. By Shareholders
---------------
The Bylaws may be repealed or amended or new Bylaws may be adopted at the annual
meeting or at a duly called special meeting of the shareholders, by a vote of
shareholders entitled to exercise 80% or more of the voting powers of the
Corporation.
Section 2. By Directors
------------
The power to repeal and amend the Bylaws and adopt new Bylaws is hereby granted
to the Board of Directors, subject to the power of the shareholders to adopt,
amend or repeal such
-11-
<PAGE>
Bylaws or to revoke this delegation of authority in the manner provided in
Section 1 of this Article VIII.
Section 3. Records of Amendments
---------------------
Whenever an Amendment or new Bylaws is adopted, it shall be copied in the book
of Bylaws with the original Bylaws, in the appropriate place. If any Bylaw is
repealed, the fact of repeal with the date of meeting at which the repeal was
enacted or written consent was filed shall be stated in said book.
July 1, 1997
-12-
<PAGE>
Exhibit 10.2
------------
GRC INTERNATIONAL, INC.
1994 EMPLOYEE OPTION PLAN
1. PURPOSE
The purpose of the 1994 Employee Option Plan is to enable the Company to
attract and retain key employees who are expected to materially contribute to
the prosperity of the Company and its affiliates, by enabling such employees to
acquire a proprietary interest (or increase their proprietary interest) in the
Company in accordance with the terms and conditions of this Plan. It is intended
that certain options granted under the Plan shall constitute incentive stock
options in accordance with the provisions of Section 422 of the Internal Revenue
Code of 1986.
2. DEFINITIONS
2.1. "Board " means the Board of Directors of the Company.
-----
2.2. "Cause", in the context of termination of employment, shall be defined
-----
in the context of executive employment and shall include, but not be limited to,
any material violation by an Optionee of any written employment agreement, any
act of dishonesty with respect to the Company or a Related Corporation thereof,
or the commission of any act reflecting unfavorably on the Company or a Related
Corporation thereof.
2.3. "Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
2.4. "Committee" means the Committee of the Board appointed pursuant to
---------
Section 4.3 hereof.
2.5. "Company" means GRC International, Inc., a Delaware corporation, or
-------
any successor thereto by merger, consolidation or otherwise.
2.6. "Director" means a director of the Company.
--------
2.7. "Disability" means the inability to engage in any substantial gainful
----------
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve months.
2.8. "Effective Date" means November 4, 1994.
--------------
2.9. "Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
2.10. "Fair Market Value" means the average of the high and low sale prices
-----------------
of the Stock quoted on the New York Stock Exchange Composite Transaction
Reporting System (or on the exchange or system where the Stock is principally
traded) on the date for which Fair Market Value is to be determined (or if
unavailable on such date, on the next preceding trading date). If the Fair
Market Value is not available on such date, the Committee shall determine the
<PAGE>
Fair Market Value; provided, however, in the case of Incentive Stock Options
such determination shall conform to the Treasury Regulations under Section 422
of the Code.
2.11. "Grant Date" means the date as of which an Option is granted by the
----------
Committee pursuant to the Plan.
2.12. "Incentive Stock Option" means an option that qualifies as an
----------------------
incentive stock option under Section 422 of the Code.
2.13. "Key Employee" means any employee of the Company or a Related
------------
Corporation who has or is expected to materially contribute to the prosperity of
the Company and or a Subsidiary. The term "Key Employee" shall include officers
but exclude non-employee directors.
2.14. "Nonqualified Stock Option" means any Option granted under this Plan
-------------------------
which is not an Incentive Stock Option.
2.15. "Officer" means any person serving as an officer (as defined in the
-------
Company's bylaws).
2.16. "Option" means an Incentive Stock Option or Nonqualified Stock Option
------
granted pursuant to the terms of the Plan without distinction as to the type.
2.17. "Option Agreement" means the agreement executed between the Company
----------------
and the Optionee pursuant to Section 9 hereof.
2.18. "Option Price" means the purchase price of shares of Stock subject to
------------
an Option.
2.19. "Option Term" means the period beginning on the Grant Date and ending
-----------
on the day an Option expires under the terms of the Option Agreement or the
Plan.
2.20. "Optionee" means any Key Employee who is granted an Option pursuant
--------
to the Plan.
2.21. "Parent" has the meaning set forth in Section 424(e) of the Code.
------
2.22. "Plan" means the GRC International, Inc. 1994 Employee Option Plan.
----
2.23. "Related Corporation" means any Parent or Subsidiary.
-------------------
2.24. "Section 16 Optionee" means an Optionee who is a director, officer or
-------------------
ten percent beneficial owner of the Company, as those terms are used under
Section 16 of the Exchange Act.
2.25. "Stock" means shares of the Company's $0.10 par value common stock.
-----
2.26. "Subsidiary" has the meaning set forth in Section 424(f) of the Code.
----------
-2-
<PAGE>
2.27. "Substantial Stockholder" means any Key Employee who, immediately
-----------------------
before an Incentive Stock Option is granted, owns (within the meaning of Section
422(b)(6) of the Code, after the application of the attribution rules contained
in Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock either of the Company or any Related Corporation
thereof.
2.28. "Treasury Regulations" means (i) any proposed or final regulations
--------------------
issued by the Internal Revenue Service with respect to incentive stock options
and any supplement or modification thereof, and (ii) any rulings, procedures,
releases or other position statements published by the Internal Revenue Service
with respect to incentive stock options.
3. STOCK SUBJECT TO PLAN
The Stock subject to Options to be granted under the Plan may be shares
of the Company's authorized but unissued Stock, or shares of Stock reacquired by
the Company and held as treasury stock. The aggregate number of shares which may
be issued under Options under this Plan shall not exceed 750,000 shares of
Stock, of which up to 550,000 may be issued to Officers of the Company, unless
such numbers of shares are adjusted as provided in Section 13. In the event that
any outstanding Option under the Plan expires or terminates for any reason
without having been exercised in full, the shares of Stock allocable to the
unexercised portion of such Option shall become available for other Options
under the Plan.
4. ADMINISTRATION OF PLAN
4.1. Administration by Committee. The Plan shall be administered by the
---------------------------
Committee which shall be appointed pursuant to Section 4.3 hereof.
4.2. Powers of Committee. The Committee has full and final authority in its
-------------------
discretion to:
(i) determine Key Employees, taking into account the nature of the
services rendered by the particular employee to the Company or a Subsidiary, the
employee's potential contribution to the long-term success of the Company or a
Subsidiary and such other factors as the Committee in its discretion shall deem
relevant;
(ii) grant Options from time to time to Key Employees;
(iii) determine the duration, terms and provisions of the Options and
of Option Agreements, including but not limited to, any vesting provisions;
(iv) condition the exercise of any Options granted hereunder on the
attainment of certain specified goals by the Key Employee or by the Company or a
Related Corporation thereof;
(v) restrict the sale or otherwise provide for the repurchase of
shares acquired pursuant to the terms of an Option;
(vi) determine the time or times at which Options shall be granted;
-3-
<PAGE>
(vii) determine the number of shares to be covered by each Option;
(viii) determine the Fair Market Value and the Option Price;
(ix) interpret the Plan;
(x) prescribe, amend and rescind rules and regulations relating to
the Plan; and
(xi) make all other determinations, orders and decisions necessary
or advisable for the administration of the Plan. All such determinations and
actions shall be conclusive and binding for all purposes and upon all persons.
4.3. Committee.
---------
4.3.1. The Plan shall be administered by a Committee appointed or
designated by the Board. The Committee shall at all times contain at least 2
members, each of which is a Director. Members of the Committee shall not be
eligible to receive Options.
4.3.2. The Board may from time to time remove members from, or add
members to, the Committee. Vacancies on the Committee, however caused, shall be
filled by the Board.
4.3.3 The interpretation and construction by the Committee of any
provision of the Plan, or of any Option granted under it, shall be final.
5. GRANTING OF OPTIONS
5.1. Granting of Options to Key Employees.
------------------------------------
5.1.1. The Committee may grant Options under the Plan to Key
Employees for such number of shares as the Committee may determine, except that
no Key Employee may be granted in any fiscal year Options to purchase more than
100,000 shares of Stock.
5.1.2. The Committee shall designate any Option granted as either
an "Incentive Stock Option" or "Nonqualified Stock Option" or the Committee may
designate a portion of a grant as an "Incentive Stock Option" and the remaining
portion as a "Nonqualified Stock Option". Any grant or portion of a grant shall
be a "Nonqualified Stock Option if it (i) is not designated as an "Incentive
Stock Option" or (ii) even if designated as an "Incentive Stock Option" shall
fail to meet the applicable requirements of Code Section 422. More than one
Option may be granted to a Key Employee subject to the terms and restrictions
set forth herein.
5.1.3. An Option shall not be granted prior to the Effective Date.
5.2. Limitation on Grant of Incentive Stock Options. Incentive Stock
----------------------------------------------
Options shall comply with the requirements of Code Section 422.
-4-
<PAGE>
6. OPTION PRICE
6.1. Committee to Determine Option Price. The Committee shall determine the
-----------------------------------
Option Price of shares of Stock for which Options are granted under the Plan,
provided that the Option Price per share of Stock shall be at least equal to the
Fair Market Value on the Grant Date.
6.2. Incentive Stock Option Price Where Optionee is Substantial
----------------------------------------------------------
Stockholder. If any Optionee is a Substantial Stockholder at the Grant Date, the
- -----------
Option Price determined by the Committee for an Incentive Stock Option shall not
be less than 110% of the Fair Market Value of the Stock on the Grant Date.
7. TERM OF OPTIONS
7.1. In General. The term of each Option shall be for such period as the
----------
Committee shall determine, not to exceed 10 years from the Grant Date, and shall
be subject to earlier termination as hereinafter provided. An Option shall not
be exercisable after the expiration of the Option Term.
7.2. Term of Incentive Stock Option Where Optionee is Substantial
------------------------------------------------------------
Stockholder. Notwithstanding Section 7.1, if any Optionee is a Substantial
- -----------
Stockholder at the Grant Date, the term of an Incentive Stock Option shall not
exceed 5 years from the Grant Date.
8. EXERCISE OF OPTIONS
8.1. Time of Exercise. Each Option shall be exercisable in accordance with
----------------
the terms of the applicable Option Agreement, except that Options shall become
immediately exercisable in full, notwithstanding any delayed exercisability
provisions in the Option Agreement, upon the death or Disability of the
Optionee.
8.2. Manner of Exercise. To exercise an Option in whole or in part, an
------------------
Optionee shall give written notice of exercise to the Committee specifying the
number of shares as to which the Option is being exercised, accompanied by
payment in full of the Option Price for such shares either in cash or in such
other consideration as approved by the Committee in its sole discretion
including, but not limited to, (i) shares of previously owned Stock held by the
Optionee for at least 6 months, or (ii) in the event of hardship and with the
advance approval of the Committee, the Company's retention of shares of Stock
otherwise issuable to the Optionee upon exercise. Shares of Stock used to make
payments under (i) and (ii) shall be valued at Fair Market Value on the date
such notice is received by the Company's Stock Option Administrator (or if
unavailable on such date, on the next preceding trading date), and the number of
shares to be required for payments under (i) or (ii) shall be rounded to the
nearest whole share so that no cash payment shall be required by reason of any
fractional amount. Not less than 10 shares may be purchased at any one time
unless the number purchased is the total number purchasable under the Option.
8.3. No Rights of Stockholder. The holder of an Option shall not have any
------------------------
of the rights of a stockholder with respect to the shares covered by his Option
until the Option is duly exercised.
-5-
<PAGE>
8.4. Additional Restrictions on Exercise. The exercise of each Option shall
-----------------------------------
also be subject to any restrictions, terms or conditions contained in the rules
and regulations of the Committee or in the Option Agreement.
9. OPTION AGREEMENT
Promptly after the grant of an Option under the Plan, and before the
exercise of any part thereof, the Company and the Optionee shall execute an
Option Agreement incorporating the terms of this Plan and specifying the Option
Price, the number of shares of Stock subject to the Option, the terms and
conditions of the Option, and such other matters, as the Committee in its sole
discretion may determine. In the case of an Incentive Stock Option the Option
Agreement shall contain such provisions as are required of Incentive Stock
Options under the Code and applicable Treasury Regulations. The Option Agreement
may also contain any other provision restricting exercise or otherwise as the
Committee shall deem appropriate; provided that in the case of an Incentive
Stock Option such provision is not inconsistent with Section 422 of the Code.
10. TERMINATION OF EMPLOYMENT
10.1. Termination For Any Reason Other Than Death Or Disability.
---------------------------------------------------------
10.1.1. If an Optionee's employment ceases for any reason other than
death or Disability or termination for Cause, his or her Option(s) shall remain
in effect until the earlier of the end of the Option Term or the expiration of 3
months after the Optionee's termination.
10.1.1. Any change in corporate ownership or structure which renders
the employees of any Related Corporation ineligible for further grants of
Incentive Stock Options by the Company under Section 422 of the Code shall be
considered a termination for reasons other than death or Disability. Options
held by such employees (whether Incentive Stock Options or Non-Qualified Stock
Options) shall be governed by the provisions of Section 10.1.1.
10.2. Termination For Cause. If an Optionee's employment is terminated for
---------------------
Cause, his or her Options shall lapse forthwith.
10.3. Disability. If an Optionee's employment ceases by reason of such
----------
Optionee's Disability, his or her Options shall remain in effect until the
earlier of the end of the Option Term or the expiration of 1 year after the
Optionee's termination.
10.4. Death. If an Optionee's employment ceases by reason of Optionee's
-----
death, his or her Options shall remain in effect until the earlier of the end of
the Option Term or the expiration of 1 year after the Optionee's death, and may
be exercised by the person to whom the Option has been transferred by will or
the laws of the descent and distribution.
10.5. Committee's Discretion. Notwithstanding the foregoing provisions of
----------------------
this Section 10, the Committee may, in its absolute discretion, extend the
privilege to exercise all or any part of the Option in accordance with its terms
for any period of time within the Option Term.
-6-
<PAGE>
11. NON-GUARANTEE OF EMPLOYMENT
Nothing in the Plan or in any Option granted pursuant to the Plan shall be
construed as a contract of employment between the Company or a Related
Corporation thereof and the Optionee, or as a contractual right to continue in
the employ of the Company or a Related Corporation thereof or as a limitation of
the right of the Company or a Related Corporation thereof to discharge the
Optionee at any time.
12. NON-TRANSFERABILITY OF OPTIONS
Except as may be expressly permitted by the Committee with respect to
any Nonqualified Stock Option, Options shall not be transferable otherwise than
by will or the laws of descent and distribution and, during the lifetime of the
Optionee, an Option may be exercised only by him or her.
13. STOCK ADJUSTMENT
13.1. Changes in Capital Structure. In the event that the outstanding
----------------------------
shares of Stock of the Company are hereafter increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, or dividend payable in capital stock, appropriate adjustment shall be
made by the Committee in the number and kind of shares for the purchase of which
Options may be granted under the Plan and to the annual limitation set forth in
Section 5.1. In addition, the Committee shall make appropriate adjustment in the
number and kind of shares as to which outstanding Options, or portions thereof
then unexercised, shall be exercisable to the end that the Optionee's
proportionate interest shall be maintained as before the occurrence of the
event. No outstanding Incentive Stock Option shall be adjusted in a manner which
would disqualify the Incentive Stock Option as an incentive stock option under
Section 422 of the Code. Any adjustment made by the Committee shall be
conclusive.
13.2. Liquidation or Dissolution. If the Company dissolves and liquidates,
--------------------------
then notwithstanding any restrictions on exercise set forth in this Plan or any
Option, each Optionee shall have the right to exercise his Option at any time on
or before the tenth day prior to the effective date of such liquidation and
dissolution. The Committee may establish a different period for exercise by
notice to the Optionee, and it may establish limitations on exercise to avoid
subjecting the Optionee to liability under Section 16(b) of the Exchange Act.
Any Option not so exercised shall terminate on the last day for exercise prior
to such effective date.
13.3. Limitation on Rights of Optionee. Except as expressly provided in
--------------------------------
Section 13.1 or 13.2 hereof, an Optionee shall have no rights by reason of the
issuance of (i) shares of Stock of the Company pursuant to this Plan, (ii)
additional shares of Stock, (iii) any other security or debenture convertible
into Stock, (iv) or any other equity security, including issuance pursuant to a
plan of merger, consolidation, or statutory share exchange, and no adjustment by
reason thereof shall be made with respect to the number of shares of Stock
subject to an Option or the Option Price.
13.4. Rights of the Company. The grant of an Option pursuant to the Plan
---------------------
shall not affect in any way the right or power of the Company to engage in
corporate transactions,
-7-
<PAGE>
including but not limited to issuing additional shares of stock; making
adjustments, reclassifications, reorganizations or changes in its capital or
business structure; participating in mergers, consolidations, or share exchanges
with one or more other corporations or entities; or dissolving, liquidating, or
selling or transferring all or any part of its business or assets.
14. LEGAL RESTRICTIONS
The Company will not be obligated to issue or deliver shares of Stock upon
exercise of an Option if counsel to the Company determines that such issuance
would violate any law or regulation of any governmental authority or any
agreement between the Company and any securities exchange or system upon which
the Stock is then listed or quoted. In connection with any stock issuance or
delivery, the person acquiring the shares shall, if requested by the Company,
give assurances satisfactory to counsel by the Company regarding such matters as
the Company may deem desirable, and other restrictions may apply to the shares,
to assure compliance with all legal requirements. The Company shall in no event
be obliged to take any action in order to cause the exercise of any Option.
15. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time at any time
after the Effective Date, except that Incentive Stock Options may not be granted
more than 10 years after the Effective Date.
16. AMENDMENT OF THE PLAN
The Board may at any time terminate, suspend or amend the Plan, provided
--------
that no such amendment shall be made without shareholder approval if such
shareholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or system on which the Stock may then be listed
or quoted.
17. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
Subject to the terms and conditions of the Plan and any Option Agreement,
the Committee may modify, extend or renew outstanding Options granted under the
Plan, or accept the surrender of outstanding Options, to the extent not
previously exercised, and authorize the granting of new Options in substitution
therefor. The Committee may not change the terms or conditions of any
outstanding Option in a manner that would adversely affect the rights of the
Optionee without the express written consent of the Optionee (or the person
entitled to exercise the Option if the Optionee is deceased) unless permitted by
the terms of the Option Agreement.
18. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Stock pursuant to the
exercise of the Optionee shall be used for its general corporate purposes.
19. WITHHOLDING TAXES
19.1. Elections to Pay Withholding Taxes. Any Optionee may pay the amount
----------------------------------
of any federal, state or local taxes required by law to be withheld in
connection with the exercise of an
-8-
<PAGE>
Option, as well as any additional taxes on the exercise up to Optionee's
marginal rate, either in cash or in such other consideration as approved by the
Committee in its sole discretion including, but not limited to (i) shares of
previously owned Stock held by the Optionee for at least six months (valued at
Fair Market Value), or (ii) the Company's retention of shares of Stock otherwise
issuable to the Optionee upon exercise (valued at Fair Market Value); provided
that only the amount of taxes required to be withheld by law may be paid
pursuant to (ii). Shares of Stock used to make payments under (i) and (ii) shall
be valued as of the exercise date, and the number of shares to be required for
payments under (i) or (ii) shall be rounded to the nearest whole share so that
no cash payment shall be required by reason of any fractional amount.
19.2. Compulsory Payment of Tax Withholding Obligations. In the event an
-------------------------------------------------
Optionee does not satisfy his tax withholding obligations pursuant to Section
19.1, the Company or a Related Corporation thereof shall have the right to
deduct from any compensation or any other payment of any kind due Optionee the
amount of any federal, state or local taxes required by law to be withheld as
the result of the exercise of an Option or the disposition (as that term is
defined in Section 424(c) of the Code) of shares acquired pursuant to the
exercise of an Incentive Stock Option. In lieu of such deduction, the Company
may require the Optionee to make a cash payment to the Company or a Related
Corporation thereof equal to the amount required to be withheld. In the event
the Optionee does not make such payment when requested, the Company may refuse
to issue any stock certificate pursuant to the exercise of any Option until
arrangements satisfactory to the Committee for such payment have been made.
20. MISCELLANEOUS
20.1. Exclusion from Retirement and Fringe Benefit Computation. The award
--------------------------------------------------------
and exercise of Options pursuant to the Plan shall not be taken into account as
"wages," "salary," or "compensation" in determining eligibility, benefits or
otherwise under (i) any pension, retirement, profit-sharing or other qualified
or non-qualified plan or deferred compensation; (ii) any employee welfare or
fringe benefit plan including, but not limited to, group life or disability
insurance; or (iii) any form of extraordinary pay including, but not limited to,
bonuses, sick pay and vacation pay.
20.2. Notice of Disqualifying Disposition. In the event an Optionee makes a
-----------------------------------
disposition (as that term is defined in Section 424(c) of the Code) of any
shares of Stock acquired pursuant to the exercise of an Incentive Stock Option
within 2 years from the date the Incentive Stock Option is granted or within one
year after the shares are transferred to the Optionee, the Optionee shall notify
the Committee of such disposition in writing.
20.3. Gender. As used herein the masculine gender shall include the
------
feminine as the identity of an Optionee may require.
20.4. Governing Law. The validity, interpretation and administration of the
-------------
Plan and of any rules, regulations, determinations or decisions made thereunder,
and the rights of any and all persons having or claiming to have any interest
therein or thereunder, shall be determined exclusively in accordance with the
laws of the State of Delaware, and applicable federal law, without regard to
principles of conflicts of law. Without limiting the generality of the
foregoing, the period within which any action in connection with the Plan must
be commenced shall be
-9-
<PAGE>
governed by the laws of the State of Delaware without regard to the place where
the act or omission complained of took place, the residence of any party to such
action or the place where the action may be brought.
20.5. Headings. The headings in this Plan are for reference purposes only
--------
and shall not affect the meaning or interpretation of the Plan.
20.6. Notices. All notice and other communications made or given pursuant
-------
to this Plan shall be in writing and shall be sufficiently made or given if hand
delivered or mailed by certified mail, addressed to the Optionee at the address
contained in the records of the Company, or to the Company at its principal
office.
-10-
<PAGE>
Exhibit 10.3
------------
GRC INTERNATIONAL, INC.
OFFICERS STOCK OPTION PLAN
1. PURPOSE
The purpose of the Officers Stock Option Plan is to enable the Company to
attract and retain the most qualified officers possible, by enabling them to
acquire a proprietary interest (or increase their proprietary interest) in the
Company in accordance with the terms and conditions of this Plan.
2. DEFINITIONS
2.1. "Board " means the Board of Directors of the Company.
-----
2.2. "Cause", in the context of termination of employment, shall be
-----
defined in the context of executive employment and shall include, but not be
limited to, any material violation by an Optionee of any written employment
agreement, any act of dishonesty with respect to the Company or a Related
Corporation thereof, or the commission of any act reflecting unfavorably on the
Company or a Related Corporation thereof.
2.3. "Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
2.4. "Committee" means the Committee of the Board appointed pursuant to
---------
Section 4.3 hereof, except as otherwise provided in Section 4.1 hereof.
2.5. "Company" means GRC International, Inc., a Delaware corporation, or
-------
any successor thereto by merger, consolidation or otherwise.
2.6. "Director" means a director of the Company.
--------
2.7. "Disability" means the inability to engage in any substantial gainful
----------
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve months, as determined by
the Committee.
2.8. "Effective Date" means August 15, 1996.
--------------
2.9. "Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
2.10. "Fair Market Value" means the average of the high and low sale prices
-----------------
of the Stock quoted on the New York Stock Exchange Composite Transaction
Reporting System (or on the exchange or system where the Stock is principally
traded) on the date for which Fair Market Value is to be determined (or if
unavailable on such date, on the next preceding trading date). If the Fair
Market Value is not available on such date, the Committee shall determine the
Fair Market Value
FORM 2(e)(5)
<PAGE>
2.11. "Grant Date" means the date as of which an Option is granted by the
----------
Committee pursuant to the Plan.
2.12. "Officer" means any officer of the Company or a Related Corporation
-------
(as defined in the bylaws of the applicable corporation). The term "Officer"
shall include the present Chairman of the Board or any future Chairman of the
Board ("Chairman"), but shall exclude other non-employee Directors.
2.13. "Option" means any stock option granted pursuant to the terms of the
------
Plan.
2.14. "Option Agreement" means the agreement executed between the Company
----------------
and the Optionee relating to the Option.
2.15. "Option Price" means the purchase price of shares of Stock subject to
------------
an Option.
2.16. "Option Term" means the period beginning on the Grant Date and ending
-----------
on the day an Option expires under the terms of the Option Agreement or the
Plan.
2.17. "Optionee" means any Officer who is granted an Option pursuant to the
--------
Plan.
2.18. "Plan" means the GRC International, Inc. Officers Stock Option Plan.
----
2.19. "Related Corporation" means any parent or subsidiary corporation, as
-------------------
defined in Section 424 of the Code.
2.20. "Section 16 Optionee" means an Optionee who is a director, officer or
-------------------
ten percent beneficial owner of the Company, as those terms are used in Section
16 of the Exchange Act.
2.21. "Stock" means shares of the Company's $0.10 par value common stock.
-----
3. STOCK SUBJECT TO PLAN
The aggregate number of shares which may be issued under Options under this
Plan shall not exceed 300,000 shares of Stock, unless such number of shares is
adjusted as provided in Section 10. The Stock subject to Options to be granted
under the Plan shall be shares of Stock reacquired by the Company and held as
treasury stock, provided, however, that the Stock subject to Options to be
-------- -------
granted under the Plan may be shares of the Company's authorized but unissued
Stock where permissible without shareholder approval under the rules of the New
York Stock Exchange (or on such other exchange or system where the Stock is
principally traded). In the event that any outstanding Option under the Plan
expires or terminates for any reason without having been exercised in full, the
shares of Stock allocable to the unexercised portion of such Option shall become
available for other Options under the Plan. In the event that the exercise price
of an Option or any taxes in connection therewith are paid by (i) shares of
previously owned Stock, or (ii) the Company's retention of shares of Stock
otherwise issuable to the Optionee upon exercise, then only the net amount of
shares of Stock actually issued to the Optionee shall be counted against the
aggregate number of shares which
-2-
<PAGE>
may be issued under the Plan, and any shares of Stock which are not actually
issued to the Optionee shall become available for other Options under the Plan.
4. ADMINISTRATION OF PLAN
4.1. Administration by Committee. The Plan shall be administered by the
---------------------------
Committee which shall be appointed pursuant to Section 4.3 hereof; provided,
however, that the Board may perform any function of the Committee under the
Plan, including without limitation for the purpose of ensuring that transactions
under the Plan by any Section 16 Optionee are exempt under Rule 16b-3. In any
case in which the Board is performing a function of the Committee under the
Plan, each reference to the Committee herein shall be deemed to refer to the
Board.
4.2. Powers of Committee. The Committee has full and final authority in
-------------------
its sole discretion to:
(i) grant Options from time to time to Officers;
(ii) determine the duration, terms and provisions of the Options
and of Option Agreements, including but not limited to, any vesting provisions;
(iii) condition the exercise of any Options granted hereunder on the
attainment of certain specified goals by the Officer or by the Company or a
Related Corporation thereof;
(iv) restrict the sale or otherwise provide for the repurchase of
shares acquired pursuant to the terms of an Option;
(vi) determine the time or times at which Options shall be granted;
(vii) determine the number of shares to be covered by each
Option;
(viii) determine the Fair Market Value and the Option Price;
(ix) interpret the Plan;
(x) prescribe, amend and rescind rules and regulations
relating to the Plan; and
(xi) make all other determinations, orders and decisions necessary
or advisable for the administration of the Plan. All such determinations and
actions shall be conclusive and binding for all purposes and upon all persons.
4.3. Committee.
---------
4.3.1. The Plan shall be administered by a Committee appointed or
designated by the Board.
-3-
<PAGE>
4.3.2. The Board may from time to time remove members from, or add
members to, the Committee. Vacancies on the Committee, however caused, shall be
filled by the Board.
4.3.3 The interpretation and construction by the Committee of any provision
of the Plan, or of any Option granted under it, shall be final.
5. EXERCISE OF OPTIONS
5.1. Time of Exercise. Each Option shall be exercisable in accordance with
----------------
the terms of the applicable Option Agreement, except that Options shall become
immediately exercisable in full, notwithstanding any delayed exercisability
provisions in the Option Agreement, upon the death or Disability of the
Optionee.
5.2. Manner of Exercise. To exercise an Option in whole or in part, an
------------------
Optionee shall give written notice of exercise to the Committee specifying the
number of shares as to which the Option is being exercised, accompanied by
payment in full of the Option Price for such shares either in cash or in such
other consideration as approved by the Committee in its sole discretion
including, but not limited to, (i) shares of previously owned Stock (held by the
Optionee for at least 6 months if acquired by exercise of option), or (ii) in
the event of hardship and with the advance approval of the Committee, the
Company's retention of shares of Stock otherwise issuable to the Optionee upon
exercise. Shares of Stock used to make payments under (i) and (ii) shall be
valued at Fair Market Value on the date such notice is received by the Company's
Stock Option Administrator (or if unavailable on such date, on the next
preceding trading date), and the number of shares to be required for payments
under (i) or (ii) shall be rounded to the nearest whole share so that no cash
payment shall be required by reason of any fractional amount. Not less than 10
shares may be purchased at any one time unless the number purchased is the total
number purchasable under the Option. The exercise of each Option shall also be
subject to any other restrictions, terms or conditions contained in the rules
and regulations of the Committee or in the Option Agreement.
5.3. No Rights of Stockholder. The holder of an Option shall not have any
------------------------
of the rights of a stockholder with respect to the shares covered by his Option
until the Option is duly exercised.
5.4. Additional Restrictions on Exercise. Notwithstanding any other
-----------------------------------
provision in this Plan to the contrary, no Option may be exercised at a time or
in a manner which could result in the loss of any tax deduction for the Company
under Section 162(m) of the Code, provided, however, that if an Option expires
within 12 months after an Optionee has properly completed and delivered an
exercise notice to the Company with respect to such Option and such exercise has
been rejected by the Company pursuant to this provision, then the expiration
date of such Option shall be extended until July 31 of the Company's first
fiscal year thereafter in which such exercise no longer could result in the loss
of any tax deduction to the Company under Section 162(m).
6. OPTION AGREEMENT
Promptly after the grant of an Option under the Plan, and before the
exercise of any part thereof, the Company and the Optionee shall execute an
Option Agreement incorporating the
-4-
<PAGE>
terms of this Plan and specifying the Option Price, the number of shares of
Stock subject to the Option, the terms and conditions of the Option, and such
other matters, as the Committee in its sole discretion may determine. The Option
Agreement may also contain any other provision restricting exercise or otherwise
as the Committee shall deem appropriate.
7. TERMINATION OF EMPLOYMENT
7.1. Termination For Any Reason Other Than Death, Disability or Cause.
----------------------------------------------------------------
7.1.1. If an Optionee's employment ceases for any reason other than
death or Disability or termination for Cause, his or her Option(s) shall remain
in effect until the earlier of the end of the Option Term or the expiration of 3
months after the Optionee's termination.
7.1.2. If any Related Corporation or division of the Company is sold
or any other transaction occurs as a result of which an Optionee is no longer an
employee of the Company or an employee of an entity which is then a Related
Corporation thereof, such Optionee's Option(s) shall remain in effect until the
earlier of the end of the Option Term or the expiration of 3 months after such
sale or other transaction.
7.2. Termination For Cause. If an Optionee's employment is terminated for
---------------------
Cause, his or her Options shall lapse forthwith.
7.3. Disability. If an Optionee's employment ceases by reason of such
----------
Optionee's Disability, his or her Options shall remain in effect until the
earlier of the end of the Option Term or the expiration of 1 year after the
Optionee's termination.
7.4. Death. If an Optionee's employment ceases by reason of Optionee's
-----
death, his or her Options shall remain in effect until the earlier of the end of
the Option Term or the expiration of 1 year after the Optionee's death, and may
be exercised by the person to whom the Option has been transferred by will or
the laws of the descent and distribution.
7.5. Committee's Discretion. Notwithstanding the foregoing provisions of
----------------------
this Section 7, the Committee may, in its sole discretion, extend the privilege
to exercise all or any part of the Option in accordance with its terms for any
period of time within the Option Term. In the event the Optionee is a Chairman,
the Committee may make appropriate provisions in the applicable Option
Agreement.
8. NO GUARANTEE OF EMPLOYMENT
Nothing in the Plan or in any Option Agreement, and no grant of an Option
pursuant to the Plan shall be construed as a contract of employment between the
Company or a Related Corporation and the Optionee, or as a contractual right to
continue in the employ of the Company or a Related Corporation or as a
limitation of the right of the Company or a Related Corporation to discharge the
Optionee at any time.
-5-
<PAGE>
9. NON-TRANSFERABILITY OF OPTIONS
Except as may be expressly permitted by the Committee, Options shall not be
transferable otherwise than by will or the laws of descent and distribution and,
during the lifetime of the Optionee, an Option may be exercised only by him or
her.
10. STOCK ADJUSTMENT
10.1. Changes in Capital Structure. In the event that the outstanding
----------------------------
shares of Stock of the Company are hereafter increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation or otherwise substantially affected by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, forward or reverse stock split, combination of shares,
dividend payable in capital stock or other special, large and non-recurring
dividend, appropriate adjustment shall be made by the Committee in the number
and kind of shares for the purchase of which Options may be granted under the
Plan. In addition, the Committee shall make appropriate adjustment in the number
and kind of shares as to which outstanding Options, or portions thereof then
unexercised, shall be exercisable, and in other Option terms, to the end that
the Optionee's proportionate interest and value shall be maintained as before
the occurrence of the event. Any adjustment made by the Committee shall be
conclusive.
10.2. Liquidation or Dissolution. If the Company dissolves and liquidates,
--------------------------
then notwithstanding any restrictions on exercise set forth in this Plan or any
Option, each Optionee shall have the right to exercise his Option at any time on
or before the tenth day prior to the effective date of such liquidation and
dissolution. The Committee may establish a different period for exercise by
notice to the Optionee, and it may establish limitations on exercise to avoid
subjecting the Optionee to liability under Section 16(b) of the Exchange Act.
Any Option not so exercised shall terminate on the last day for exercise prior
to such effective date.
10.3. Limitation on Rights of Optionee. Except as expressly provided in
--------------------------------
Section 10.1 or 10.2 hereof, an Optionee shall have no rights by reason of the
issuance of (i) shares of Stock of the Company pursuant to this Plan, (ii)
additional shares of Stock, (iii) any other security or debenture convertible
into Stock, (iv) or any other equity security, including issuance pursuant to a
plan of merger, consolidation or statutory share exchange, and no adjustment by
reason thereof shall be made with respect to the number of shares of Stock
subject to an Option or the Option Price.
10.4. Rights of the Company. The grant of an Option pursuant to the
---------------------
Plan shall not affect in any way the right or power of the Company to engage in
corporate transactions, including but not limited to issuing additional shares
of stock; making adjustments, reclassifications, reorganizations or changes in
its capital or business structure; participating in mergers, consolidations or
share exchanges with one or more other corporations or entities; or dissolving,
liquidating or selling or transferring all or any part of its business or
assets.
11. LEGAL RESTRICTIONS
The Company will not be obligated to issue or deliver shares of Stock upon
exercise of an Option if counsel to the Company determines that such issuance
would violate any law or regulation of any governmental authority or any
agreement between the Company and any
-6-
<PAGE>
securities exchange or system upon which the Stock is then listed or quoted. In
connection with any stock issuance or delivery, the person acquiring the shares
shall, if requested by the Company, give assurances satisfactory to counsel by
the Company regarding such matters as the Company may deem desirable, and other
restrictions may apply to the shares, to assure compliance with all legal
requirements. The Company shall in no event be obligated to take any action in
order to cause the exercise of any Option.
12. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time at any time
after the Effective Date.
13. AMENDMENT OF THE PLAN
The Board may at any time terminate, suspend or amend the Plan, provided
that no such amendment shall be made without shareholder approval if such
shareholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or system on which the Stock may then be listed
or quoted, and provided, further, that no such amendment shall materially
adversely affect the rights of an Optionee without the express written consent
of the Optionee (or the person otherwise entitled to exercise the Option) unless
permitted by the terms of the Option Agreement.
14. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
Subject to the terms and conditions of the Plan and any Option Agreement,
the Committee may modify, extend or renew outstanding Options granted under the
Plan, or accept the surrender of outstanding Options, to the extent not
previously exercised, and authorize the granting of new Options in substitution
therefor. The Committee may not change the terms or conditions of any
outstanding Option in a manner that would materially adversely affect the rights
of the Optionee without the express written consent of the Optionee (or the
person otherwise entitled to exercise the Option) unless permitted by the terms
of the Option Agreement.
15. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Stock pursuant to the
exercise of the Option shall be used for its general corporate purposes.
16. WITHHOLDING TAXES
16.1. Elections to Pay Withholding Taxes. Any Optionee may pay the amount
----------------------------------
of any federal, state or local taxes required by law to be withheld in
connection with the exercise of an Option, as well as any additional taxes on
the exercise up to Optionee's marginal rate, either in cash or in such other
consideration as approved by the Committee in its sole discretion including, but
not limited to (i) shares of previously owned Stock (held by the Optionee for at
least 6 months if acquired by exercise of option) (valued at Fair Market Value),
or (ii) the Company's retention of shares of Stock otherwise issuable to the
Optionee upon exercise (valued at Fair Market Value). Shares of Stock used to
make payments under (i) and (ii) shall be valued as of the exercise date, and
the number of shares to be required for payments under
-7-
<PAGE>
(i) or (ii) shall be rounded to the nearest whole share so that no cash payment
shall be required by reason of any fractional amount.
16.2. Compulsory Payment of Tax Withholding Obligations. In the event an
-------------------------------------------------
Optionee does not satisfy his tax withholding obligations pursuant to Section
16.1, the Company or a Related Corporation shall have the right to deduct from
any compensation or any other payment of any kind due Optionee the amount of any
federal, state or local taxes required by law to be withheld as the result of
the exercise of an Option. In lieu of such deduction, the Company may require
the Optionee to make a cash payment to the Company or a Related Corporation
thereof equal to the amount required to be withheld. In the event the Optionee
does not make such payment when requested, the Company may refuse to issue any
stock certificate pursuant to the exercise of any Option until arrangements
satisfactory to the Committee for such payment have been made.
17. RULE 16b-3 COMPLIANCE
17.1. Six-Month Holding Period. Unless an Optionee could otherwise dispose
------------------------
of equity securities, including derivative securities, acquired under the Plan
without incurring liability under Section 16(b) of the Exchange Act, equity
securities acquired under the Plan must be held for a period of six months
following the date of such acquisition, provided that this condition shall be
satisfied with respect to a derivative security if at least six months elapse
from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or conversion)
or its underlying equity security.
17.2. Other Compliance Provisions. With respect to a Section 16 Optionee,
---------------------------
the Committee shall implement transactions under the Plan and administer the
Plan in a manner that will ensure that each transaction by such Optionee is
exempt from liability under Rule 16b-3, except that such Optionee may be
permitted to engage in a non-exempt transaction under the Plan if written notice
has been given to the Optionee regarding the non-exempt nature of the
transaction. The Committee may authorize the Company to repurchase any Option or
shares of Stock acquired under the Plan in order to prevent a Section 16
Optionee from incurring liability under Section 16(b). Unless otherwise
specified by the Optionee, equity securities, including derivative securities,
acquired under the Plan which are disposed of by an Optionee shall be deemed to
be disposed of in the order acquired by the Optionee.
18. MISCELLANEOUS
18.1. Exclusion from Retirement and Fringe Benefit Computation. The award
--------------------------------------------------------
and exercise of Options pursuant to the Plan shall not be taken into account as
"wages," "salary" or "compensation" in determining eligibility, benefits or
otherwise under (i) any pension, retirement, profit-sharing or other qualified
or non-qualified plan or deferred compensation plan; (ii) any employee welfare
or fringe benefit plan including, but not limited to, group life or disability
insurance; or (iii) any form of extraordinary pay including, but not limited to,
bonuses, sick pay and vacation pay.
18.2. Gender. As used herein the masculine gender shall include the
------
feminine as the identity of an Optionee may require.
-8-
<PAGE>
18.3. Governing Law. The validity, interpretation and administration of the
-------------
Plan and of any rules, regulations, determinations or decisions made thereunder,
and the rights of any and all persons having or claiming to have any interest
therein or thereunder, shall be determined exclusively in accordance with the
laws of the State of Delaware, without regard to principles of conflicts of law,
and applicable federal law. Without limiting the generality of the foregoing,
the period within which any action in connection with the Plan must be commenced
shall be governed by the laws of the State of Delaware without regard to the
place where the act or omission complained of took place, the residence of any
party to such action or the place where the action may be brought.
18.4. Headings. The headings in this Plan are for reference purposes only
--------
and shall not affect the meaning or interpretation of the Plan.
18.5. Notices. All notice and other communications made or given pursuant
-------
to this Plan shall be in writing and shall be sufficiently made or given if hand
delivered or mailed by certified mail, addressed to the Optionee at the address
contained in the records of the Company, or to the Company at its principal
office.
-9-
<PAGE>
Exhibit 10.4
------------
GRC INTERNATIONAL, INC.
CASH COMPENSATION REPLACEMENT PLAN
1. PURPOSE
The loyal and dedicated service of key executives is essential to the
growth and progress of any public company. Accordingly, the Cash Compensation
Replacement Plan (the "Plan") of GRC International, Inc. (the "Company") has
been adopted to better enable the Company to retain and attract qualified key
executives, while reducing the Company's cash outlay for executive compensation.
The Plan is also designed to provide a stronger nexus between the contributions
made to the Company by its key executives and the value of the compensation they
receive.
2. ADMINISTRATION
The Plan will be administered on a calendar quarter basis. The Plan will be
administered by a committee of three or more persons (the "Committee"). Such
persons shall not be eligible to participate in the Plan, and will be appointed
by the Board of Directors of the Company. Awards of the Company's Common Stock,
par value $.10 per share ("Stock"), and options to purchase the Stock
("Options"), and the amount and nature of the Stock and Options so awarded, will
be automatic, as provided in Sections 5 and 6 of the Plan. All questions of
interpretation of the Plan will be determined by the Committee. Such
determinations will be final and binding upon all persons having an interest in
the Plan.
3. PARTICIPATION IN THE PLAN
Employees of the Company (or subsidiaries thereof) who are determined by
the Committee to be "key executives" for the purposes of this Plan, whether or
not such employees are officers of the Company or any subsidiary of the Company,
are eligible to participate in the Plan. A list of such eligible executives will
be established by majority vote of the Committee, with such list to be revised
as necessary. In determining which executives may participate in the Plan, the
Committee may take into account the nature of the services rendered by such
executives, their present and potential contributions to the Company's success,
and such other factors as the Committee in its discretion deems relevant.
Options available under the Plan may be granted to key executives who have
received options under other plans and/or may be eligible to do so in the
future.
4. STOCK SUBJECT TO THE PLAN
4.1. Total Shares Available. Up to four hundred forty thousand (440,000)
----------------------
shares (subject to adjustment under Section 8 of the Plan) of Stock are
authorized for issuance under the Plan. Such shares of Stock may be issued (i)
outright, or (ii) upon the exercise of Options. The total number of shares of
Stock awarded under (i) and (ii) shall not exceed 440,000 (subject to
adjustment). The Company may issue authorized but unissued shares of its Stock,
may repurchase shares in the open market or in private transactions, or may
otherwise make a sufficient number of shares available under the Plan. The
Company shall not be required to reserve or otherwise set aside funds or shares
of Stock for the payment of its obligations hereunder. The Company shall make
available as and when required a sufficient number of shares of Stock to meet
the needs of the Plan.
4.2. Unexercised or Expired Options. Upon the expiration or termination of
------------------------------
any Option under the Plan, the Stock allocable to the unexercised or surrendered
portion of such
FORM 2(e)(3)
<PAGE>
Option will revert to the Plan's pool of Stock, and shall be available for other
awards of Stock and Options under the Plan.
5. AWARDS OF STOCK
5.1. Fair Market Value of Stock. For purposes of determining the number of
--------------------------
shares of Stock to be awarded with respect to any calendar quarter, the fair
market value of the Stock shall be the average of the high and low sale prices
of the Stock quoted on the New York Stock Exchange Composite Transaction
Reporting System for the Fridays of such quarter ("Quarterly Fair Market
Value"). If such sale prices are not available for any such Friday, then the
average of the high and low sale prices on the next preceding day on which such
sale prices are available shall be used in lieu thereof.
5.2. Election. Quarterly awards of Stock will be made to each eligible key
--------
executive who has submitted to the Committee at least 5 days prior to the
beginning of the calendar quarter in question a written election to receive
Stock in lieu of up to twenty five percent (25%) of salary and up to one hundred
percent (100%) of bonus payable during such quarter. In the case of a newly
hired officer, such election may be effective immediately if received within a
reasonable time after the commencement of the officer's employment with the
Company. Each such election shall be effective until revoked by a later written
election, but no such later election shall become effective until the first
calendar quarter to begin at least 5 days after the later election is received
by the Company. The amount of salary and bonus to be applied to Stock awards, in
accordance with a key executive's election, shall be the "Stock Award
Compensation".
5.3. Stock Awards and Formula. Shortly after the end of each calendar
-------------------------
quarter, there shall be awarded to each key executive who has previously
submitted an appropriate election in accordance with Section 5.2 above, the
nearest whole number of shares of Stock which most closely approximates the key
executive's Stock Award Compensation for the quarter in accordance with the
following formula:
<TABLE>
<S> <C> <C>
[1.25] X [Key Executive's Stock Award Compensation for the Quarter] = Number of
- -------------------------------------------------------------------- Shares of Stock
Quarterly Fair Market Value
</TABLE>
5.4. Payment of Tax Withholding Obligations. The amount required to be
--------------------------------------
withheld under applicable income tax laws in connection with any award of Stock
under the Plan shall be paid by the Company's retention of shares from the
shares of Stock to be awarded. Shares of Stock used to make such tax withholding
payments shall be valued at the average of the high and low sale prices of the
Stock quoted on the New York Stock Exchange Composite Transaction Reporting
System on the date of award (or if unavailable on such date, on the next
preceding trading date), and the number of shares to be required for payments
shall be rounded up or down to the nearest whole share so that no cash payment
to the Company shall be required by reason of any fractional amount.
6. AWARDS OF OPTIONS
All Options awarded under the Plan will be "non-statutory options," and
therefore are not entitled to special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as it may be amended from time to time (the
"Code"). Each Option awarded under the Plan will be evidenced by a written
agreement in such form as the Committee may from time to time approve,
consistent with and subject to the following terms and conditions:
2
<PAGE>
6.1. Exercise Price of Options. The exercise price of Options to be awarded
-------------------------
with respect to any calendar quarter shall be twenty five percent (25%) of the
Quarterly Fair Market Value for such quarter.
6.2. Election. Quarterly awards of Options will be made to each eligible
--------
key executive who has submitted to the Committee at least 5 days prior to the
beginning of the calendar quarter in question a written election to receive
Options in lieu of up to twenty five percent (25%) of salary and up to one
hundred percent (100%) of bonus payable during such quarter. In the case of a
newly hired officer, such election may be effective immediately if received
within a reasonable time after the commencement of the officer's employment with
the Company. Each such election shall be effective until revoked by a later
written election, but no such later election shall become effective until the
first calendar quarter to begin at least 5 days after the later election is
received by the Company. The amount of salary and bonus to be applied to Option
awards, in accordance with a key executive's election, shall be the "Option
Award Compensation".
6.3. Option Awards and Formula. As of the end of each calendar quarter,
-------------------------
there shall be awarded to each key executive who has previously submitted an
appropriate election in accordance with Section 6.2 above, the nearest whole
number of Options which most closely approximates the key executive's Option
Award Compensation for the quarter in accordance with the following formula:
<TABLE>
<S> <C> <C>
[1.25] X [Key Executive's Option Award Compensation for the Quarter] = Number
- -------------------------------------------------------------------- of Options
(Quarterly Fair Market Value) Minus (Exercise Price of Options)
</TABLE>
6.4. Period of Option. Options awarded under the Plan become exercisable in
----------------
increments. Eighty percent (80%) of each Option is exercisable immediately; ten
percent (10%) of each Option shall become exercisable on or after the second
anniversary of the date on which it was awarded; five percent (5%) of each
Option shall become exercisable on or after the third anniversary of such date;
and five percent (5%) of each Option shall become exercisable on or after the
fourth anniversary of such date; provided, however, that any Option awarded
pursuant to the Plan will become exercisable in full upon the death or
disability of the key executive.
6.5. Exercise of Options.
-------------------
(a) To exercise an Option in whole or in part, the holder of an
Option ("Optionee") shall give written notice of exercise to the Company's Stock
Option Administrator specifying the number of shares as to which the Option is
being exercised, accompanied by payment in full of the Option Price for such
shares either in cash or in such other consideration as approved by the
Committee in its sole discretion including, but not limited to, (i) shares of
previously owned Common Stock which, if acquired by exercise of an option, have
been held by the Optionee for at least six (6) months, or (ii) in the event of
hardship and with the advance approval of the Committee, the Company's retention
of shares of Common Stock otherwise issuable to the Optionee upon exercise.
Shares of Stock used to make payments under (i) and (ii) shall be valued at the
average of the high and low sale prices of the Stock quoted on the New York
Stock Exchange Composite Transaction Reporting System on the date such notice is
received by the Stock Option Administrator (or if unavailable on such date, on
the next preceding trading date), and the number of shares to be required for
payments under (I) or (ii) shall be rounded up or down to the nearest whole
share so that no cash payment shall be required by reason of any fractional
amount.
3
<PAGE>
(b) Notwithstanding any other provision in this Plan to the contrary,
no Option may be exercised at a time or in a manner which could result in the
loss of any tax deduction for the Company under Section 162(m) of the Code.
6.6. Elections to Pay Withholding Taxes. Any key executive may pay the
----------------------------------
amount of any federal, state or local taxes required by law to be withheld in
connection with the exercise of an Option, as well as any additional taxes on
the exercise up to the key executive's marginal rate, either in cash or in such
other consideration as approved by the Committee in its sole discretion
including, but not limited to (i) shares of previously owned Stock, or (ii) the
Company's retention of shares of Stock otherwise issuable to the key executive
upon exercise; provided that only the amount of taxes required to be withheld by
--------
law may be paid pursuant to (ii). Shares of Stock used to make payments under
(i) and (ii) shall be valued at the average of the high and low sale prices of
the Stock quoted on the New York Stock Exchange Composite Transaction Reporting
System on the date the exercise notice is received by the Company's Stock Option
Administrator, and the number of shares to be required for payments under (i) or
(ii) shall be rounded up or down to the nearest whole share so that no cash
payment shall be required by reason of any fractional amount.
6.7. Termination of Options.
----------------------
(a) Options awarded pursuant to the Plan may not be exercised after
the third anniversary of a key executive's termination as an employee for any
reason, including, but not limited to, such key executive's resignation or
voluntary departure from the Company, involuntary termination by the Company of
such key executive's employment, or termination of employment by reason of
death, disability or retirement. Any Options which have not been exercised on or
before such third anniversary shall thereupon expire, except as provided in
subsection (b) below.
(b) Any Option granted a key executive under the Plan and
unexercised, in whole or in part, on the date of his death may be exercised by
the personal representative of the deceased key executive's estate, or by any
heir, devisee, or other taker who, by will or operation of law, is entitled to
said Option or any portion thereof. In each such case, such Option(s) may be
exercised at any time on or before the third anniversary of the earlier of the
key executive's termination of employment or death, as provided in subsection
(a) above.
(c) Options awarded pursuant to the Plan shall have no stated or
other expiration date except as provide in this Section 6.7. Such Options are
not forfeitable in the event of termination of employment or otherwise.
6.8. No Shareholder Rights By Reason of Options. A key executive shall not
------------------------------------------
have any rights whatsoever as a shareholder with respect to any unexercised
Option until the Option has been duly exercised in accordance with the
procedures approved from time to time by the Committee. No adjustment will be
made for dividends or other rights with respect to which the record date occurs
prior to the date the Option has been duly exercised.
6.9. Options Not Assignable Or Transferable. Options awarded under the Plan
--------------------------------------
are not assignable or transferable other than by will or by the laws of
intestate succession. During the lifetime of a key executive, Options awarded
under the Plan will be exercisable only by that key executive.
7. LIMITATION OF RIGHTS
7.1. No Right to Continue as an Employee. Neither the Plan, the awarding of
-----------------------------------
any Stock or Option, nor any other action taken pursuant to the Plan constitutes
or is evidence of
4
<PAGE>
any agreement or understanding, express or implied, that the Company will retain
a key executive for any period of time or at any particular rate of
compensation.
7.2. No Rights to Receive Stock or Options After Eligibility Ceases. A key
--------------------------------------------------------------
executive has no rights to receive Stock or Options under the Plan, and will not
receive any Stock or Options, with respect to any calendar quarter, or part
thereof, in which he or she is no longer considered by the Committee to be a
"key executive".
7.3. Limitation on Rights of Optionee. Except as expressly provided in
--------------------------------
Section 8, an Optionee shall have no rights by reason of the issuance by the
Company to any other person of (i) shares of Stock pursuant to this Plan, (ii)
additional shares of Stock, (iii) any other security or debenture convertible
into Stock, (iv) or any other equity security, including issuance pursuant to a
plan of merger, consolidation, or statutory share exchange, and no adjustment by
reason thereof shall be made with respect to the number of shares of Stock
subject to an Option or the exercise price.
7.4. Rights of the Company. The grant of an Option pursuant to the Plan
---------------------
shall not affect in any way the right or power of the Company to issue
additional shares of Stock or other securities; to make adjustments,
reclassifications, reorganizations or changes in its capital or business
structure; to participate in a merger, consolidation, or share exchange with
another corporation; or to dissolve, liquidate, or sell or transfer all or any
part of its business or assets.
8. ADJUSTMENTS
In the event any change is made to the Stock by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or
otherwise, including but not limited to any change whereby the Stock is
converted into or exchanged for another class of shares or shares of another
entity, appropriate and comparable adjustments will be made to the number and
kind of shares subject to the Plan, and to the number and kind of shares and
price per share of Stock subject to outstanding Options issued pursuant to the
Plan, and to the prices of Stock used in calculating the Quarterly Fair Market
Value of the Stock. All such adjustments will be made in such a manner as avoids
dilution or enlargement of the rights of key executives under the Plan.
9. AMENDMENT OF THE PLAN
The Board of Directors of the Company may suspend or terminate the Plan or
revise or amend it in any respect whatsoever; provided that, without approval of
--------
the shareholders of the Company, no revision or amendment may change the number
of shares subject to the Plan (except as provided in Section 8 of the Plan) or
materially increase the benefits accruing to participants under the Plan, and
provided further that no revision or amendment or termination shall, without the
- ----------------
consent of the affected key executive(s), impair the rights of any key executive
under any Option previously awarded.
10. LEGAL RESTRICTIONS
The Company will not be obligated to issue shares of Stock if counsel to
the Company determines that such issuance would violate any law or regulation of
any governmental authority or any agreement between the Company and any national
securities exchange upon which the Stock is listed. In connection with any stock
issuance or transfer, the person acquiring the shares shall, if requested by the
Company, give assurances satisfactory to counsel to the Company regarding such
matters as the Company may deem desirable to assure compliance with all legal
requirements. The Company shall in no event be obliged to take any action in
order to cause the exercise of any Option.
5
<PAGE>
11. RULE 16b-3 COMPLIANCE
11.1. Six-Month Holding Period. Unless an Optionee could otherwise dispose
------------------------
of equity securities, including derivative securities, acquired under the Plan
without incurring liability under Section 16(b) of the Exchange Act, equity
securities acquired under the Plan must be held for a period of six months
following the date of such acquisition, provided that this condition shall be
satisfied with respect to a derivative security if at least six months elapse
from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or conversion)
or its underlying equity security.
11.2. Other Compliance Provisions. With respect to an Optionee who is a
---------------------------
director, officer or ten percent beneficial owner of the Company, as those terms
are used in Section 16 of the Exchange Act. (such person is hereinafter referred
to as a "Section 16 Optionee"), the Committee shall implement transactions under
the Plan and administer the Plan in a manner that will ensure that each
transaction by such Optionee is exempt from liability under Rule 16b-3, except
that such Optionee may be permitted to engage in a non-exempt transaction under
the Plan if written notice has been given to the Optionee regarding the
non-exempt nature of the transaction. The Committee may authorize the Company to
repurchase any Option or shares of Stock acquired under the Plan in order to
prevent a Section 16 Optionee from incurring liability under Section 16(b).
Unless otherwise specified by the Optionee, equity securities, including
derivative securities, acquired under the Plan which are disposed of by an
Optionee shall be deemed to be disposed of in the order acquired by the
Optionee.
12. GOVERNING LAW
The Plan will be governed, and its provisions construed, in accordance
with the laws of the State of Delaware and applicable federal law, without
regard to conflicts of law.
6
<PAGE>
Exhibit 10.6
------------
GRC INTERNATIONAL, INC.
DIRECTORS FEE REPLACEMENT PLAN
1. PURPOSE
The loyal and dedicated service of "outside" directors is essential to the
growth and progress of any public company. Accordingly, the Directors Fee
Replacement Plan (the "Plan") of GRC International, Inc. (the "Company") has
been adopted to better enable the Company to retain and attract qualified
outside directors to serve on the Company's Board of Directors, while reducing
the Company's cash outlay of director's fees. The Plan is also designed to
provide a stronger nexus between the contributions made to the Company by its
outside directors and the value of the compensation they receive.
2. ADMINISTRATION
The Plan will be administered on a calendar quarter basis. The Plan will be
administered by a committee of three or more persons (the "Committee") who will
be appointed by the Board of Directors of the Company. Awards of the Company's
Common Stock, par value $.10 per share ("Stock"), and options to purchase the
Stock ("Options"), and the amount and nature of the Stock and Options so
awarded, will be automatic, as provided in Sections 5 and 6 of the Plan. All
questions of interpretation of the Plan will be determined by the Committee.
Such determinations will be final and binding upon all persons having an
interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors who are not employees of the Company or any subsidiary of the
Company are eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
4.1. Total Shares Available. Up to one hundred fifty thousand (150,000)
----------------------
shares (subject to adjustment under Section 11 of the Plan) of Stock are
authorized for issuance under the Plan. Such shares of Stock may be issued (i)
outright, or (ii) upon the exercise of Options. The total number of shares of
Stock awarded under (i) and (ii) shall not exceed 150,000. The Company may issue
authorized but unissued shares of its Stock, may repurchase shares in the open
market or in private transactions, or may otherwise make a sufficient number of
shares available under the Plan. The Company shall not be required to reserve or
otherwise set aside funds or shares of Stock for the payment of its obligations
hereunder. The Company shall make available as and when required a sufficient
number of shares of Stock to meet the needs of the Plan.
4.2. Unexercised or Expired Options. Upon the expiration or termination of
------------------------------
any Option under the Plan, the Stock allocable to the unexercised or surrendered
portion of such Option will revert to the Plan's pool of Stock, and may
thereupon become subject to Stock and Options subsequently awarded under the
Plan.
5. AWARDS OF STOCK
5.1. Fair Market Value of Stock. For purposes of determining the number of
--------------------------
shares of Stock to be awarded with respect to any calendar quarter, the Fair
Market Value of the Stock shall be the average of the high and low sale prices
of the Stock quoted on the New York Stock Exchange Composite Transaction
Reporting System for the Fridays of such quarter. If such sale prices are not
available for any such Friday, then the average of the high and low sale prices
on the next preceding day on which such sale prices are available shall be used
in lieu thereof.
FORM 2(e)(2)
<PAGE>
5.2. Election. Quarterly awards of Stock will be made to each eligible
--------
director who has submitted to the Committee at least 5 days prior to the
beginning of the calendar quarter in question a written election to receive
Stock in lieu of all or any part of the compensation which is not being deferred
under any other plan and which otherwise would have been payable currently for
services rendered as a director (including the director's retainer and meeting
fees) and, where applicable, as Chairman. In the case of a new director, such
election may be effective immediately if received within a reasonable time after
the director's election. Each such election shall be effective until revoked by
a later written election, but no such later election shall become effective
until the first calendar quarter to begin at least 5 days after the later
election is received by the Company.
5.3. Stock Awards and Formula. Shortly after the end of each calendar
------------------------
quarter, a director who has previously submitted an appropriate election to
receive Stock in accordance with Section 5.2 above shall receive a combination
of Stock and cash. One-half (1/2) of the director's compensation for the quarter
shall be payable in cash, and one-half (1/2) shall be payable in Stock. The
number of shares of Stock to be awarded shall be the nearest whole number which
most closely approximates the director's compensation for the quarter in
accordance with the following formula:
One-Half (1/2) of Director's
Applicable Compensation for the Quarter Number
--------------------------------------- = of Shares
Fair Market Value of Stock of Stock
6. AWARDS OF OPTIONS
All Options awarded under the Plan will be "non-statutory options," and
therefore are not entitled to special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as it may be amended from time to time (the
"Code"). Each Option awarded under the Plan will be evidenced by a written
agreement in such form as the Committee may from time to time approve,
consistent with and subject to the following terms and conditions:
6.1. Fair Market Value of Stock. For purposes of determining the number of
--------------------------
Options to be awarded with respect to any calendar quarter, the Fair Market
Value of the Stock for such quarter shall be the average of the high and low
sale prices of the Stock quoted on the New York Stock Exchange Composite
Transaction Reporting System for the Fridays of such quarter. If such sale
prices are not available for any such Friday, then the average of the high and
low sale prices on the next preceding day on which such sale prices are
available shall be used in lieu thereof.
6.2. Exercise Price of Options. The exercise price of Options to be awarded
-------------------------
with respect to any calendar quarter shall be twenty five percent (25%) of the
Fair Market Value of the Stock for such quarter.
6.3. Election. Quarterly awards of Options will be made to each eligible
--------
director who has submitted to the Committee at least 5 days prior to the
beginning of the calendar quarter in question a written election to receive
Options in lieu of all or any part of the compensation which is not being
deferred under any other plan and which otherwise would have been payable
currently for services rendered as a director (including the director's retainer
and meeting fees) and, where applicable, as Chairman. In the case of a new
director, such election may be effective immediately if received within a
reasonable time after the director's election. Each such election shall be
effective until revoked by a later written election, but no such later election
shall become effective until the first calendar quarter to begin at least 5 days
after the later election is received by the Company.
-2-
<PAGE>
6.4. Option Awards and Formula. As of the end of each calendar quarter,
-------------------------
there shall be awarded to each director who has previously submitted an
appropriate election in accordance with Section 6.3 above the nearest whole
number of Options which most closely approximates the director's compensation
for the quarter in accordance with the following formula:
Director's Applicable Compensation for the Quarter
- -------------------------------------------------------------- = Number
(Fair Market Value of Stock) Minus (Exercise Price of Options) of Options
6.5. Exercise of Options. Options may be exercised at any time after their
-------------------
grant. To exercise an Option in whole or in part, the holder of an Option
("Optionee") shall give written notice of exercise to the Company's Stock Option
Administrator specifying the number of shares as to which the Option is being
exercised, accompanied by payment in full of the Option Price for such shares
either in cash or in such other consideration as approved by the Committee in
its sole discretion including, but not limited to, (i) shares of previously
owned Common Stock held by the Optionee for at least six (6) months, or (ii) in
the event of hardship and with the advance approval of the Committee, the
Company's retention of shares of Common Stock otherwise issuable to the Optionee
upon exercise. Shares of Stock used to make payments under subsections (ii) and
(iii) shall be valued at the average of the high and low sale prices of the
Stock quoted on the New York Stock Exchange Composite Transaction Reporting
System on the date such notice is received by the Stock Option Administrator (or
if unavailable on such date, on the next preceding trading date), and the number
of shares to be required for payments under (ii) or (iii) shall be rounded to
the nearest whole share so that no cash payment shall be required by reason of
any fractional amount.
6.6. Termination of Options.
----------------------
(a) Options awarded pursuant to the Plan may not be exercised after
the third anniversary of a director's termination as a director for any reason,
including, but not limited to, such director's resignation or cessation of
service following a decision not to stand for reelection, or his termination as
a director due to removal, death, disability or retirement. Any Options which
have not been exercised on or before such third anniversary shall thereupon
expire.
(b) Any Option awarded a director under the Plan and unexercised, in
whole or in part, on the date of his death may be exercised by the personal
representative of the deceased director's estate, or by any heir, devisee, or
other taker who, by will or operation of law, is entitled to said Option or any
portion thereof. In each such case, such Option(s) may be exercised at any time
on or before the third anniversary of the director's death, as provided in
Section 6.6(a).
6.7. No Shareholder Rights By Reason of Options. A director does not have
------------------------------------------
any rights whatsoever as a shareholder with respect to any unexercised Option
until the date of the issuance to that director of a stock certificate(s) for
shares to be issued upon the proper exercise of said Option. No adjustment will
be made for dividends or other rights with respect to which the record date
occurs prior to the date such certificate is issued.
6.8. Options Not Assignable Or Transferable. Options awarded under the Plan
--------------------------------------
are not assignable or transferable other than by will or by the laws of
intestate succession. During the lifetime of a director, Options awarded under
the Plan will be exercisable only by that director.
-3-
<PAGE>
7. TIME FOR AWARDS
No Stock or Options may be awarded under the Plan with respect to outside
director's compensation for services performed after December 31, 1997.
8. LIMITATION OF RIGHTS
8.1. No Right to Continue as a Director. Neither the Plan, the awarding of
----------------------------------
any Stock or Option, nor any other action taken pursuant to the Plan constitutes
or is evidence of any agreement or understanding, express or implied, that the
Company will retain a director for any period of time or at any particular rate
of compensation.
8.2. No Rights to Receive Stock or Options After Eligibility Ceases. A
--------------------------------------------------------------
director has no rights to receive Stock or Options under the Plan, and will not
receive any Stock or Options for any calendar quarter, or part thereof, once he
or she: (i) becomes an employee of the Company or any subsidiary of the Company;
or (ii) ceases to be a director.
8.3. Limitation on Rights of Optionee. Except as expressly provided in
--------------------------------
Section 9, an Optionee shall have no rights by reason of the issuance of (i)
shares of Stock pursuant to this Plan, (ii) additional shares of Stock, (iii)
any other security or debenture convertible into Stock, (iv) or any other equity
security, including issuance pursuant to a plan of merger, consolidation, or
statutory share exchange, and no adjustment by reason thereof shall be made with
respect to the number of shares of Stock subject to an Option or the exercise
price.
8.4. Rights of the Company. The grant of an Option pursuant to the Plan
---------------------
shall not affect in any way the right or power of the Company to issue
additional shares of stock; to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure; to participate
in a merger, consolidation, or share exchange with another corporation; or to
dissolve, liquidate, or sell or transfer all or any part of its business or
assets.
9. ADJUSTMENTS
In the event any change is made to the Stock by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or
otherwise, including but not limited to any change whereby the Stock is
converted into or exchanged for another class of shares or shares of another
entity, appropriate and comparable adjustments will be made to the number and
kind of shares subject to the Plan, and to the number and kind of shares and
price per share of Stock subject to outstanding Options issued pursuant to the
Plan, and the prices of Stock used in calculating the Fair Market Value of the
Stock under Sections 5.1 and 6.1. All such adjustments will be made in such a
manner as avoids dilution or enlargement of the rights of directors under the
Plan.
10. AMENDMENT OF THE PLAN
The Board of Directors of the Company may suspend or terminate the Plan or
revise or amend it in any respect whatsoever; provided that, without approval of
--------
the shareholders of the Company, no revision or amendment may change the number
of shares subject to the Plan (except as provided in Section 9 of the Plan) or
materially increase the benefits accruing to participants under the Plan, and
provided further that no revision or amendment or termination shall, without the
- -------- -------
consent of the affected director(s), impair the rights of any director under any
Option previously awarded.
11. LEGAL RESTRICTIONS
The Company will not be obligated to issue shares of Stock if counsel to
the Company determines that such issuance would violate any law or regulation of
any governmental
-4-
<PAGE>
authority or any agreement between the Company and any national securities
exchange upon which the Stock is listed. In connection with any stock issuance
or transfer, the person acquiring the shares shall, if requested by the Company,
give assurances satisfactory to counsel by the Company regarding such matters as
the Company may deem desirable to assure compliance with all legal requirements.
The Company shall in no event be obliged to take any action in order to cause
the exercise of any Option.
12. RULE 16b-3 COMPLIANCE
12.1. Six-Month Holding Period. Unless an Optionee could otherwise dispose
------------------------
of equity securities, including derivative securities, acquired under the Plan
without incurring liability under Section 16(b) of the Exchange Act, equity
securities acquired under the Plan must be held for a period of six months
following the date of such acquisition, provided that this condition shall be
satisfied with respect to a derivative security if at least six months elapse
from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or conversion)
or its underlying equity security.
12.2. Other Compliance Provisions. The Committee shall implement
---------------------------
transactions under the Plan and administer the Plan in a manner that will ensure
that each transaction by an Optionee is exempt from liability under Rule 16b-3,
except that Optionees may be permitted to engage in a non-exempt transaction
under the Plan if written notice has been given to the Optionee regarding the
non-exempt nature of the transaction. The Committee may authorize the Company to
repurchase any Option or shares of Stock acquired under the Plan in order to
prevent an Optionee from incurring liability under Section 16(b). Unless
otherwise specified by the Optionee, equity securities, including derivative
securities, acquired under the Plan which are disposed of by an Optionee shall
be deemed to be disposed of in the order acquired by the Optionee.
13. GOVERNING LAW
The Plan will be governed, and its provisions construed, in accordance with
the laws of the State of Delaware and applicable federal law, without regard to
conflicts of law.
-5-
<PAGE>
Exhibit 10.8
------------
GRC INTERNATIONAL, INC.
DIRECTORS RETIREMENT PLAN
Article 1. PURPOSE OF PLAN.
---------------
(a) General Purpose. GRC International, Inc. (the "Company"), hereby
---------------
establishes this Directors Retirement Plan (the "Plan") as of the 1st day of
July, 1991 to provide supplementary retirement income for its eligible
Directors. The Company believes that the interests of its shareholders will best
be served by being able to attract and retain well qualified individuals to
serve as Directors and that this Plan is consistent with those objectives.
(b) Nonqualified Plan. It is intended that this Plan be maintained as
-----------------
an unfunded, unsecured, nonqualified deferred compensation arrangement, not
subject to the substantive provisions of the Employee Retirement Income Security
Act of 1974 and not eligible for the insurance protection provided by the
Pension Benefit Guaranty Corporation, provided, however, that if a Change of
Control occurs, all benefits payable hereunder will be paid in accordance with
Article 5.
Article 2. DEFINITIONS.
-----------
For purposes of this Plan and any explanatory material associated with
it, the following terms shall have the following meanings unless stated
otherwise:
(a) "Board" means the board of directors of the Company.
(b) "Change of Control" means the occurrence of any one of the
following events without the approval of a majority of the Continuing Directors:
(i) any Person, other than the Company or a Related Party,
acquires directly or indirectly the Beneficial Ownership of any voting security
of the Company and immediately after such acquisition such Person is, directly
or indirectly, the Beneficial Owner of voting securities representing twenty-
five percent (25%) or more of the total voting power of all the then outstanding
voting securities; or
(ii) the Continuing Directors cease for any reason to constitute a
majority of the members of the Board; or
(iii) the shareholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, a reverse
stock split of outstanding voting securities, or an acquisition of voting
securities or assets by the Company, or consummation of any such transaction if
shareholder approval is not obtained, other than (A) any such transaction which
would result in at least eighty percent (80%) of the total voting power
represented by the voting securities of the Company or the voting securities of
such surviving entity outstanding immediately after such transaction being
Beneficially Owned by at least eighty percent (80%) of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative to
other such continuing holders not substantially altered in the transaction, or
(B) any such transaction in which all of the voting securities of the Company or
voting securities of the surviving entity are Beneficially Owned by Related
Parties; or
<PAGE>
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets other than any such
transaction which would result in Related Parties owning or acquiring more than
fifty percent (50%) of the assets owned by the Company immediately prior to the
transaction.
For purposes of this Article 2(b):
(i) the terms "Person," "Beneficial Owner," "Beneficially Owns,"
and "Beneficial Ownership" shall have the meanings ascribed to such terms for
purposes of Section 13(d) of the Securities Exchange Act of 1934 and the rules
thereunder;
(ii) "Related Party" means (A) a majority-owned subsidiary of the
Company; or (B) an employee or group of employees of the Company or any
majority-owned subsidiary of the Company; or (C) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
majority-owned subsidiary of the Company; or (D) a corporation owned directly or
indirectly by the shareholders of the Company in substantially the same
proportion as their ownership of voting securities; or (E) a Person Beneficially
Owning more than ten percent (10%) of any outstanding class of voting security
of the Company who would be required to report such ownership on a Schedule 13D
or an amendment thereto, if, prior to any acquisition of a voting security which
resulted in such Person Beneficially Owning more than ten percent (10%) of such
class, the Board approved the transaction giving rise to the increase in
Beneficial Ownership, provided that such Person has not, prior to obtaining
Board approval of any such transaction, publicly announced an intention to take
actions which, if consummated or successful (at a time such Person has not been
deemed a "Related Party"), would constitute a Change of Control; and
(iii) "Continuing Directors" means the individuals who constituted
the Board as of July 1, 1991, or who constitute the Board at any time thereafter
if their election or nomination for election to the Board was approved by a vote
of a majority of the Directors then in office who either were Directors as of
July 1, 1991 or whose election or nomination for election was previously so
approved.
(c) "Change of Control Annuity" means the benefit described in
Article 5.
(d) "Committee" means those Directors appointed by the Board to
administer the Plan.
(e) "Death Benefit" means that benefit described in Article 6.
(f) "Designated Beneficiary" means the beneficiary designated in
accordance with Article 6.
(g) "Director" means a member of the Board who occupied such position
on or after the Effective Date.
(h) "Distribution Event" means a Director's termination of service as a
Director for any reason.
-2-
<PAGE>
(i) "Effective Date" means July 1, 1991.
(j) "Plan Year" means the "short year" commencing with the Effective
Date of this Plan and ending December 31, 1991 and each subsequent calendar
year.
(k) "Retirement Benefit" means either the "Standard Retirement Benefit"
or the "Alternate Retirement Benefit". "Standard Retirement Benefit" means a
monthly benefit payable in accordance with the applicable terms of Article 4.
"Alternate Retirement Benefit" shall mean the alternate form of Retirement
Benefit described in Article 4(d).
(l) "Service" means service performed on behalf of the Company as a
Director.
(m) "Year of Service" means the twelve (12) month period commencing
with the date on which the individual became a Director, and each such 12 month
period thereafter; provided, however, that a Director will not be given credit
for a Year of Service for any such 12 month period in which the Director's fees,
wages, salary or bonuses paid to him by the Company exceed $150,000 in the
aggregate.
Article 3. ELIGIBILITY.
-----------
(a) Each Director who has completed five (5) or more Years of Service
shall be eligible to receive a Retirement Benefit. If a Change of Control
occurs, however, a Director shall be entitled to a Change of Control Annuity
without regard to whether he has completed five (5) Years of Service.
(b) Notwithstanding any provision of this Plan to the contrary, if any
Director, while still serving on the Board, engages in any conduct specifically
intended by such Director to cause significant harm or damage to the Company
(excluding any conduct required to comply with a legal obligation), then such
Director shall forfeit any Retirement Benefit (and the corresponding Death
Benefit) otherwise payable hereunder; provided, however, that in the event of a
Change of Control while such Director is still serving on the Board, such
conduct shall not result in the forfeiture of such Director's Change of Control
Annuity (nor of the corresponding death benefit).
Article 4. RETIREMENT BENEFIT.
------------------
(a) Grant. Upon a Director's Distribution Event, such Director shall
-----
become entitled to an irrevocable Standard Retirement Benefit as hereinafter
provided, unless the Director requests and the Board approves an Alternate
Retirement Benefit pursuant to Article 4(d).
(b) Amount and Service Requirement. No Director with less than five (5)
------------------------------
Years of Service shall be eligible for any Retirement Benefit, provided,
however, that such Director shall nevertheless be entitled to a Change of
Control Annuity under the circumstances described in Article 5. Any Director who
has completed more than five (5) Years of Service shall receive a Standard
Retirement Benefit consisting of monthly payments equal to one-twelfth (1/12) of
the Director's annual retainer in effect at the time of such Director's
Distribution Event multiplied by the applicable percentage set forth in the
following table:
-3-
<PAGE>
<TABLE>
<CAPTION>
Years of Service Applicable
As a Director Percentage
------------- ----------
<S> <C>
Less than 5 0%
5 50%
6 60%
7 70%
8 80%
9 90%
10 or more 100%
</TABLE>
It is recognized and acknowledged that the following named Directors have
completed ten (10) or more Years of Service and are eligible for a Standard
Retirement Benefit calculated using a 100% applicable percentage under the
foregoing table: H. Furlong Baldwin and . It is further recognized and
acknowledged that as of November 7, 1996, (i) Director Herbert Rabin has
completed eight (8) Years of Service.
(c) Form and Duration of Standard Retirement Benefit. The Standard
------------------------------------------------
Retirement Benefit shall be payable to the Director monthly (commencing with the
first business day of the Plan Year following the Director's Distribution Event)
for a period of (i) 180 months, or (ii) the Director's life, whichever period is
shorter.
(d) Alternate Retirement Benefit. At the written request of the
----------------------------
Director, the Board may, in its absolute discretion, approve or disapprove any
Alternate Retirement Benefit, including but not limited to a lump sum, provided,
however, that such Alternate Retirement Benefit is the actuarial equivalent (as
determined by the Board) of the Standard Retirement Benefit, and provided,
further, that such Alternate Retirement Benefit shall be payable on or
commencing with the first business day of the Plan Year following the Director's
Distribution Event. Any Director requesting an Alternate Retirement Benefit
shall do so at the time and in the manner prescribed by the Board.
Article 5. CHANGE OF CONTROL ANNUITY.
-------------------------
(a) Notwithstanding any other provision of this Plan to the contrary,
upon the occurrence of a Change of Control, each serving Director and each
former Director (who has received or is receiving a Retirement Benefit) shall
become fully vested in and entitled to an irrevocable Change of Control Annuity
instead of a Retirement Benefit.
(b) In the event of a Change of Control, the Company shall purchase a
Change of Control Annuity for each Director from an insurance company with a
Best's rating of at least "AAA". Each Change of Control Annuity shall provide
for a monthly payment equal to one-twelfth (1/12) of (i) the then current annual
Director retainer fee, or (ii) the annual Director retainer fee in effect just
prior to the Change of Control, whichever amount is higher. With respect to a
serving Director, such monthly payment shall commence on the first business day
of the month following the Director's Distribution Event and continue for a
period of (i) 180 months, or (ii) the Director's life, whichever is shorter.
With respect to a former Director, such monthly payment shall commence on the
first business day of the month following the Change of Control and continue for
a period of (i) 180 months (less the number of whole months elapsed since the
first business day of the Plan Year following the Director's Distribution
Event), or (ii) the Director's life, whichever is shorter. Each Change of
Control Annuity shall also
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<PAGE>
include a death benefit comparable to the Death Benefit provided under Article
6. Each Change of Control Annuity shall also include a cash surrender feature
entitling the recipient to redeem the contract for its present value, based on
the actuarial life expectancy of the Director at the time of the Company's
purchase of the Change of Control Annuity without regard to the health, medical
condition or other circumstances of the Director. In addition, such Change in
Control Annuity shall be actuarially adjusted, if and to the extent appropriate,
to reflect any prior payment to a Director in the form of an Alternate
Retirement Benefit. As an example of such actuarial adjustment, if a Director
retires at a time when the annual retainer is $12,000, and the Director receives
a lump sum settlement as an Alternate Retirement Benefit rather than the
Standard Retirement Benefit, and subsequently a Change of Control occurs when
the annual retainer is $18,000, then such Director's Change of Control Annuity
shall be a monthly payment equal to $500, or $6,000 per year, which is the
amount by which the retainer was increased.
(c) If a Change of Control has occurred or appears to be imminent, the
Board or the Committee shall take any steps that may be necessary to implement
the provisions of this Plan, including the purchase of Change of Control
Annuities in accordance with this Article 5.
Article 6. DEATH BENEFIT.
-------------
(a) Death While Serving as a Director. If a Director should die while
---------------------------------
serving as a Director, and such Director has not requested an Alternate
Retirement Benefit, then, the monthly amount that would have been payable to the
Director as his Standard Retirement Benefit shall be paid to the Designated
Beneficiary commencing with the first business day of the month following the
Director's death and continuing through the month which includes the first
anniversary of the Director's death.
(b) Death After Distribution Event. If a Director should die after his
------------------------------
Distribution Event, and such Director has not requested an Alternate Retirement
Benefit, then the monthly amount that would have been payable to the Director as
his Standard Retirement Benefit for the next six (6) months or, if longer, until
the next anniversary of the commencement of the Director's Standard Retirement
Benefit, shall be paid to the Designated Beneficiary.
(c) Inapplicable to Alternate Retirement Benefit. The Death Benefit
-------------------------------------------
shall be payable only with respect to the Standard Retirement Benefit. No Death
Benefit shall be payable with respect to any Alternate Retirement Benefit.
(d) Beneficiary Designation. A Director shall make a beneficiary
-----------------------
designation in writing on a form filed with the Committee and may change such
beneficiary designation at any time by written notice to the Committee. If no
beneficiary designation has been filed or if the Designated Beneficiary
predeceased the Director, any Death Benefit hereunder shall be paid to the
Director's estate.
Article 7. HARDSHIP.
--------
Upon receipt of a written request from a Director (or, if applicable, the
Designated Beneficiary), the Committee, in its sole discretion, may determine
that acceleration of any payments hereunder is necessary on account of a severe
financial hardship to the Director or Designated Beneficiary. In such case, the
Committee may accelerate payments as necessary to relieve the hardship. If the
Director dies after receiving a hardship distribution, the Death
-5-
<PAGE>
Benefit payable pursuant to Article 6 shall be reduced by the amount of any
monthly payments which were previously accelerated and which relate to the
relevant period for which Death Benefits would otherwise be payable. The Board
shall determine the existence of a severe financial hardship in a manner
consistent with Internal Revenue Service rules and regulations pertaining to the
avoidance of constructive receipt of income.
Article 8. MISCELLANEOUS.
-------------
(a) No person shall be entitled to anticipate any payment hereunder by
assignment, alienation, sale, pledge, encumbrance or transfer of such payments
in any form or manner prior to actual or constructive receipt thereof.
(b) Subject to the provisions of Article 5 regarding the Change of
Control Annuity, the Company's obligations hereunder shall be entirely unfunded
and unsecured, and upon the nonpayment of any obligation hereunder, a Director
or his Designated Beneficiary shall have the right only of an unsecured creditor
of the Company.
(c) The Board, either acting directly or through the Committee, shall
interpret the Plan and make all determinations necessary or desirable to
implement the Plan. The determination of either the Board or the Committee shall
be final and conclusive. The Board or the Committee may obtain such advice or
assistance as it deems appropriate from persons not serving on the Board of
Directors or the Committee.
(d) Any payment due hereunder shall be made on the first business day
of the applicable month.
(e) Whenever the Board or Committee exercises any discretion under this
Plan with respect to a Director, that Director shall not participate in the
voting on such matters.
(f) This Plan shall be subject to and governed by the laws of the
Commonwealth of Virginia without regard to the conflict of laws and principles
thereof.
(g) The Board may amend or terminate this Plan at any time and for any
reason, provided, however, that no such amendment or termination shall reduce or
impair the rights of any Director accrued prior to such action, and provided,
further, that this Plan shall not be amended or terminated following a Change of
Control without the consent of a majority of the Continuing Directors.
(as amended, May 22, 1997)
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<PAGE>
GRC INTERNATIONAL, INC.
EMPLOYMENT AGREEMENT
(SENIOR VICE PRESIDENT-DIRECT REPORT TO CEO)
THIS EMPLOYMENT AGREEMENT is made in Vienna, Virginia as of _________________
by and between ______________________________________________________________
(hereinafter referred to in the first person or as "Employee") and GRC
International, Inc., a corporation with its principal offices at 1900 Gallows
Road, Vienna, Virginia 22182 ("Company"). The term "Company" shall also include
any parent, subsidiary or affiliate of the Company. As a condition to, and in
consideration of, the Company's employment of Employee, the parties mutually
agree as follows:
1. DUTIES.
------
(a) I agree to work for the Company in the capacity set forth in Item 1(a) of
Exhibit A attached hereto. My duties will include all of those generally
associated with said position, subject to the direction and assignment of the
Company's Board of Directors. The duties assigned to me shall be performed at
the place of employment specified in Item 1(b) of Exhibit A or at such other
location as the Board of Directors may determine is in the best interest of the
Company. All of my working time and energies shall be devoted to the foregoing
duties. I will inform the Company, in writing, if I engage in any outside
business activity, and I will obtain the prior written approval of the Company,
if I engage in any outside business activity which (i) requires the use of
skills for which I was hired by the Company or the use of skills attained during
the course of my employment with the Company or (ii) would, in the opinion of
the Company, compete with or conflict with my employment with the Company.
While employed by the Company, absent the expressed, prior written authorization
of the Company's Board of Directors, I will not, directly or indirectly, engage
in any activity competitive with or adverse to the Company's business or
welfare, whether alone, as a partner of any partnership or joint venture or as
an officer, director, employee, or holder of 5% or more of any class of stock,
of any corporation.
(b) I agree that for a period of one year immediately following termination
(voluntary or otherwise) of my employment with the Company, I will not interfere
with the business of the Company by inducing an employee to leave the Company's
employment, by inducing a consultant to sever the consultant's relationship with
the Company, or by inducing a customer to sever the customer's relationship
with the Company.
(c) This Agreement cancels and replaces in their entirety any and all previous
employment agreements entered into between me and the Company or any of its
subsidiaries.
2. INTELLECTUAL PROPERTY.
---------------------
(a) In this Agreement, (i) "Intellectual Property" means any patent, trademark,
copyright, semiconductor mask right, trade secret, invention, discovery,
design, idea or improvement (whether or not any of the foregoing are patentable,
protectable by copyright, or otherwise protectable), and (ii) the word "made",
when used with "Intellectual Property", means made, devised, developed,
conceived or reduced to practice. Exhibit B to this Agreement contains a
complete list of all Intellectual Property I consider proprietary to me, and,
during my employment with the Company, I agree to update Exhibit B from time to
time as may be necessary to keep it current. I will not incorporate or permit to
be incorporated into any work performed for or on behalf of the Company any
Intellectual Property proprietary to me or any third party.
(b) I will disclose to the Company all Intellectual Property made by me, alone
or with others, during any period of employment with the Company. All such
disclosures shall be reviewed by the Company in confidence to determine any
issues which may arise.
<PAGE>
(c) I will assign to the Company all right, title and interest in and to all
Intellectual Property made at any time by me alone or with others during or
after my employment with the Company, if such Intellectual Property was made
using Company equipment, supplies, facilities, or trade secret information, or
such Intellectual Property either (i) relates at the time of conception or
reduction to practice of the invention to the Company's business, or actual or
demonstrably anticipated research or development of the Company; or (ii) results
from any work performed by me for the Company. All Intellectual Property subject
to this paragraph shall remain Company property whether or not so disclosed or
assigned to the Company. I will cooperate fully with the Company during and
after employment in accomplishing the intent of this provision and execute such
instruments and documents reasonably requested by the Company, in order to more
fully vest in the Company all ownership rights in the Intellectual Property. In
addition, I irrevocably appoint the Company and each of its officers as my agent
and attorney-in-fact to act in my name and stead to execute and file any
documents and to do all other lawfully permitted actions to further the
prosecution, issuance and enforcement of patents, copyrights and other
proprietary rights with the same force and effect as if executed and delivered
by me.
(d) The provisions of the foregoing Section 2(c) shall not apply to an
invention developed by me entirely on my own time without using Company
equipment, supplies, facilities, or trade secret information except for those
inventions that either (i) relate at the time of conception or reduction to
practice of the invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company; or (ii) result from any work
performed by me for the Company.
3. PROPRIETARY INFORMATION. I understand that in the course of my employment
-----------------------
with the Company, I will be making use of, acquiring or adding to proprietary
and/or confidential information and materials of the Company or of other parties
("Proprietary Information"). I will not disclose or use any Proprietary
Information either during or after my employment with the Company, except to the
extent expressly authorized in writing by an officer of the Company. The
following are some examples of Proprietary Information, even if not marked or
identified as such:
(i) Computer software of all kinds, source and object codes, algorithms,
coding sheets, compilers, assemblers, design concepts, routines and subroutines,
and all related documents and materials;
(ii) Business practices, marketing techniques, mailing lists, purchasing
information, price lists, pricing policies, quoting procedures, customer and
prospective customer lists and information, and all materials or information
relating to the manner in which the Company does business.
(iii) Discoveries, concepts and ideas, whether or not patentable, protectable
by copyright, or otherwise protectable, trade secrets, "know-how," production
processes, research and development activities, and information on products or
programs;
(iv) Financial information, cost structure, bidding strategy, salary
structure, and such other information not in the public domain as may be helpful
to competitors or harmful to the Company, its customers or employees.
(v) Any other information, materials or documents related to the business or
activities of the Company which are not generally known to others engaged in
similar businesses or activities; and
(vi) All ideas which are derived from my access to or knowledge of any of the
above.
4. CONFLICTS OF INTEREST. I have read and understood the Company's Corporate
---------------------
Standards of Conduct, and while employed by the Company, I agree to abide by
said Standards of Conduct, as the same may be amended from time to time, and to
complete the Company's Ethics Questionnaire as required by the Company from time
to time. Except as fully disclosed in a document attached to this agreement, I
am not a party to any agreement or understanding with any other person or
business, nor am
-2-
<PAGE>
I subject to any other legal restriction or obligation, which would in any way
prohibit, impede or hinder my employment with the Company or the performance of
my duties in the course of such employment.
5. COMPENSATION.
------------
(a) During the term of my employment hereunder, the Company shall pay me the
annual salary set forth in Exhibit A, Item 3(a) ("Gross Annual Salary").
(b) In addition to the Gross Annual Salary, I shall be entitled to receive the
additional compensation, if any, specified in Exhibit A, Item 3(b) ("Additional
Compensation").
6. DISABILITY. If I am unable to fulfill the duties of my position by reason
----------
of any illness, incapacity or disability, my salary shall be payable for only 90
days following the onset of such illness, incapacity or disability, provided,
however, that if I (i) have applied for insurance benefits under the Company's
long-term disability policy during said 90 day period, and (ii) have not yet
begun to receive payments under said policy during said 90 day period, then my
salary shall continue to be payable for up to 180 days following the onset of
such illness, incapacity or disability until I begin to receive such payments.
During the foregoing 90 day period (or 180 day period, if applicable), my
salary, to the extent not covered by the Company's short-term disability
benefits, shall be paid through the use of my sick leave, if any, accumulated
prior to January 1, 1994, but if such sick leave is or becomes exhausted, my
salary shall nevertheless be paid for the 90 day period (or 180 day period, if
applicable). If I shall return to full employment and full discharge of my
duties during the term of this Agreement, full compensation shall be
prospectively reinstated for any remaining term of this Agreement.
7. TERMINATION AND SEVERANCE.
-------------------------
(a) Subject to Section 7(f) regarding a Change of Control, this Agreement may
be terminated by either party without Cause on six (6) months written notice to
the other party. Subject to Section 7(f) regarding a Change of Control, this
Agreement may be terminated by the Company immediately for Cause by written
notice to me. For purposes of this Section 7, "Cause" for termination shall
exist in the event of my dishonesty, chronic absenteeism, conviction of a
felony, conviction of a misdemeanor involving moral turpitude, or material
breach of this Agreement.
(b) To the maximum extent permitted by law, I hereby expressly authorize the
Company in advance upon my termination to deduct from my final paycheck(s) and
from my paid time off (PTO) check all amounts I owe the Company (including but
not limited to repayment of advances, loans or any other obligations).
(c) Upon termination of employment, I will execute and comply with the Employee
Termination Certificate attached hereto as Exhibit C, and deliver to the Company
all notes, data, tapes, lists, reference materials, sketches, drawings,
memoranda, records and other documents which are in my possession or control
belonging to the Company or relating to its business.
(d) Termination of this Agreement will not relieve me from my obligations under
Sections 1(b), 2 and 3 of this Agreement, which, by their respective terms,
continue beyond the termination of this Agreement.
(e) In the event of my death, this Agreement will terminate and all accrued and
unpaid compensation and expenses, less all amounts I owe the Company (including
but not limited to repayment of advances, loans or any other obligations), will
be payable to my estate.
(f) Notwithstanding any other provision of this Agreement to the contrary, at
any time during the thirty (30) month period following a Change of Control (as
hereinafter defined),
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<PAGE>
(i) if the Company (A) without Cause, terminates my employment or
terminates this Agreement or gives me notice of either of such
terminations, (B) materially diminishes my level of responsibility or
position in the Company, (C) materially diminishes my salary or my
bonus potential, (D) fails to provide me with any material benefit or
prerequisite provided to any other executive in a comparable
position, (E) requires me to relocate to an office more than 25 miles
from my place of employment immediately prior to the Change of
Control, (F) materially breaches this Agreement (including but not
limited to the terms set forth on Exhibit A hereto) in any other way,
then I shall receive, in addition to any other compensation provided
for in this Agreement, a lump-sum severance payment on the date of
termination of my employment in an amount equal to two (2) times the
Gross Annual Salary, less any income, excise, employment or other tax
withholdings which the Company is required by law to deduct
therefrom; and
(ii) if the Company takes any action described in clauses (A) through (F)
of paragraph (f)(i) above, then the Company shall provide me with the
same level of employee benefits I have been receiving immediately
prior to such action, and such benefits shall be provided until the
earlier of (A) such time as I obtain new benefits coverage by reason
of new employment, or (B) the two (2) year anniversary of my
termination of employment with the Company; and
(iii) if the Company takes any action described in clauses (A) through (F)
of paragraph (f)(i) above and fails to provide me with any benefit
required under paragraph (f)(i) or (f)(ii) above, then the Company
shall reimburse me for any legal fees and expenses I incur in
successfully enforcing my rights under either or both of said
paragraphs.
(g) For purposes of this Agreement, a Change of Control shall mean the
satisfaction of the conditions set forth in any one of the following paragraphs:
(i) any person (as defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") as modified and used in Sections
13(d) and 14(d) thereof, except that neither (A) the Company or any of its
------
subsidiaries, (B) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (C) an
underwriter temporarily holding securities pursuant to an offering of such
securities, nor (D) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company shall be included in such term) (a "Person")
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding securities; or
(ii) during any period of up to two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board of Directors of the Company (the
"Board") and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction described
in clause (i), (iii) or (iv) of this paragraph) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) the shareholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (A) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, at least 75%
of the combined voting power of the voting securities of the Company or such
-4-
<PAGE>
surviving entity outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires more than 50% of
the combined voting power of the Company's than outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(h) Notwithstanding any other provision of this Agreement, in the event than
any payment or benefit received or to be received by the Employee in connection
with a Change of Control or the termination of the Employee's employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any Person whose actions result in a Change of
Control or any person affiliated with the Company or such Person) (all such
payments and benefits, including the Severance Benefits, being hereinafter
called the "Total Benefits"), would be subject (in whole or in part) to the
excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the Severance Benefits shall be
reduced to the extent necessary so that no portion of the Total Benefits is
subject to the Excise Tax if (A) the net amount of such Total Benefits, as so
reduced, (and after deduction of the net amount of federal, state and local
income taxes and FICA and Medicare taxes on such reduced Total Benefits) is
greater than (B) the excess of (i) the net amount of such Total Benefits,
without deduction (but after deduction of the net amount of federal, state and
local income taxes and FICA and Medicare taxes on such Total Benefits), over
(ii) the amount of Excise Tax to which the Employee would be subject in respect
of such Total Benefits. For purposes of determining whether and the extent to
which the Total Benefits will be subject to the Excise Tax, (i) no portion of
the Total Benefits the receipt or enjoyment of which the Employee shall have
effectively waived in writing prior to the Employee's date of termination of
employment shall be taken into account, (ii) no portion of the Total Benefits
whall be taken into account which in the opinion of tax counsel selected by the
Company does not constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code, and (iii) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Benefits shall be determined
by the Company's independent auditors in accordance with the principles of
Sections 280G(d)(3) and (d)(4) of the Code. For purposes of this Section 7(h),
the term "Severance Benefits" means the benefits provided for by Section 7(f)
hereof.
8. NOTICE.
------
(a) Any notice to be given to me under this Agreement shall be in writing and
delivered by (i) registered or certified mail, return receipt requested; (ii)
express courier; or (iii) hand-delivery, at an address specified for me in this
Agreement or in any Exhibit hereto or at such other address of which written
notice has been given to the Company by me by any of the foregoing means.
(b) Any notice to be given to the Company under this Agreement shall be in
writing and delivered by any of the means specified in subsection (a) above, to
the President with a copy to the Senior Vice President, General Counsel &
Secretary, GRC Internation Inc., 1900 Gallows Road, Vienna, Virginia 22182.
9. DISPUTES.
--------
(a) This Agreement has been executed in and shall be governed by the laws of
the Commonwealth of Virginia.
(b) Any controversy or claim arising out of or relating to Employee's
employment on this Agreement shall be resolved in the courts of Fairfax County,
Virginia, and Employee hereby submits to the jurisdiction of such courts, and
agrees to accept service of process from such courts.
-5-
<PAGE>
(c) I understand and agree that the Company will suffer irreparable harm if I
breach any of my obligations under this agreement and that monetary damages may
be inadequate to compensate for such breach. Accordingly, in the event of a
breach or threatened breach by me, the Company, in addition to and not in
limitation of any other rights, remedies or damages available to it at law or in
equity or otherwise, shall be entitled to a injunctive relief preventing any
such breach by myself or by my partners, agents, representatives, servants,
employers, employees and/or any and all persons directly or indirectly acting
for or with me.
10. ASSIGNMENT. My services are unique and personal. Accordingly, I may not
----------
assign any rights or delegate any duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Company.
11. ENTIRE AGREEMENT. This agreement, together with all documents attached to
----------------
this agreement or specifically referred to in it, contains the entire agreement
and understandings by and between the Company and me with respect to the
covenants described in this agreement, and any representation, promise,
agreement or understanding, written or oral, not contained in this agreement
shall be of no force or effect. No change or modification of this agreement
shall be valid or binding unless the change or modification is in writing and
signed by the parties to this agreement. Any representation contrary to this
agreement, express or implied, written or oral, is hereby disclaimed. Nothing
in this agreement shall obligate the Company to employ me for any length of
time. No waiver of any provision of this agreement shall be valid unless it is
in writing and signed by the party against whom such waiver is sought to be
enforced, and no waiver of any provision shall be deemed a waiver of any other
provision or a waiver of the same provision at any other time.
12. SEVERABILITY. Any provision of this agreement which may be determined to
------------
be unenforceable, invalid or illegal shall be deemed stricken from this
agreement and all remaining provisions shall continue in full force and effect.
13. REASONABLENESS OF RESTRICTIONS. I have carefully read and considered the
------------------------------
provisions of this agreement and, having done so, agree that the restrictions
set forth in this agreement are fair and reasonable and are reasonably required
for the Company's protection. This agreement shall be construed fairly as to
all parties and not in favor of or against any party, regardless of which party
prepared this agreement. In the event that, notwithstanding the foregoing, any
part of his agreement shall be held to be invalid or enforceable, the remaining
parts of the agreement shall nevertheless continue to be valid and enforceable
as though the invalid or unenforceable parts had not been included in the
agreement. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first set forth above.
ATTEST: GRC INTERNATIONAL, INC.
By:
- ------------------------------------ ---------------------------
Thomas E. McCabe Jim Roth
Sr. Vice President, General Counsel President & Chief Executive
& Secretary Officer
WITNESS EMPLOYEE
- ------------------------------------ ------------------------------
(Signature)
------------------------------
(Please print name)
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
By:
-----------------------------------------------
Leslie B. Disharoon, Committee Chairman
-7-
<PAGE>
EXHIBIT A
---------
DETAILS OF EMPLOYMENT
---------------------
EMPLOYEE:
ITEM 1(a) Position:
ITEM 1(b) Place of Employment:
ITEM 2 Effective Date of Employment Agreement:
Effective date of this Exhibit:
ITEM 3(a) Gross Annual Salary:
ITEM 3(b) Additional Compensation (if any):
ITEM 4 Notice to Employee:
-------------------------------- ------------------------------------
and/
or
-------------------------------- ------------------------------------
-------------------------------- ------------------------------------
EMPLOYEE: GRC INTERNATIONAL, INC.
By:
- ------------------------------------ -----------------------------------
Jim Roth
President & Chief Executive Officer
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
By:
-----------------------------------------
Leslie B. Disharoon, Committee Chairman
-8-
<PAGE>
EXHIBIT B
---------
SCHEDULE OF INTELLECTUAL PROPERTY
---------------------------------
I developed or conceived, and consider proprietary to me, the following
Intellectual Property, as that term is defined in the Employment Agreement to
which this Exhibit is attached:
EMPLOYEE
----------------------------------
(Signature)
----------------------------------
(Please print name)
----------------------------------
(Date)
-9-
<PAGE>
EXHIBIT C
---------
TERMINATION STATEMENT
---------------------
(to be signed upon termination of employment)
1. I, ______________________________(employee's name), am cognizant of my
legal obligations, as stated in a certain EMPLOYMENT AGREEMENT dated ___________
____________________ between myself and GRC International, Inc. (together with
its subsidiaries, the "Company"), and I hereby specifically reaffirm all of the
terms stated in that agreement.
2. I hereby certify that all materials related directly or indirectly to
my employment with the Company have been returned to the Company. I further
certify that no computer listings, programs, object codes, source codes, product
development guides, flowcharts, test equipment, drawings, blueprints or other
materials owned by the Company or provided to or used by me in connection with
my employment at the Company, whether in machine-readable form or otherwise,
have been retained by me or given to any other third person or entity in
anticipation of my employment termination or for any other reason, and I also
certify that none of those materials will be removed from the Company's premises
by me.
3. I also certify that I have returned all company identification and
credit cards issued to me and all keys to Company and/or customer property that
have been in my possession.
4. I am not aware of any action or situation involving any violation of the
Company's Corporate Standards of Conduct by any employee, director, consultant
or representative of the Company, except as follows:
5. My forwarding addresses are as follows:
HOME ADDRESS BUSINESS ADDRESS
----------------------- ---------------------------
----------------------- ---------------------------
----------------------- ---------------------------
----------------------- ---------------------------
EMPLOYEE:
------------------------
(Signature)
------------------------
(Please print name)
------------------------
(Date)
-10-
<PAGE>
GRC INTERNATIONAL, INC.
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment ("Amendment") to Employment Agreement is made in Vienna, Virginia
as of _________________ by and between _________________ (hereinafter referred
to in the first person or as "Employee") and GRC International, Inc., a
corporation with its principal offices at 1900 Gallows Road, Vienna, Virginia
22182 ("Company"). Any term used in this Amendment which is not otherwise
defined herein shall have the meaning assigned to such term in the Employment
Agreement.
BACKGROUND
----------
A. Employee and the Company are parties to an Employment Agreement dated
__________________ ("Employment Agreement").
B. The Company has announced that it has retained Smith Barney, Inc. as its
financial advisor to advise the Company with respect to a full range of
financial and strategic options, which could include, among other things, a
merger or acquisition of the entire Company.
C. In addition to and without prejudice to, the benefits provided to Employee
in the Employment Agreement, the Company desires to amend the Employment
Agreement to provide a special "stay-put" payment to Employee to induce
Employee to remain an employee of the Company, in spite of the uncertainties
created in the present environment. The aggregate amount of this special
"stay-put" payment shall be $_____________________________.
1. "STAY-PUT" PAYMENT.
------------------
(a) If, during the period beginning on the date first set forth in this
Agreement and ending on the date of a Change of Control, Employee has
continued to be an employee of the Company throughout such period, then, on
the third business day following the date of the Change of Control, the
Company shall pay Employee, in a single lump-sum, in addition to any other
compensation provided for in the Employment Agreement, an initial one-third
(1/3) installment of the "stay-put" payment, less any income, excise,
employment or other tax withholdings which the Company is required by law to
deduct therefrom.
(b) If, during the period beginning on the date first set forth in this
Agreement and ending on the three (3) month anniversary of a Change of
Control, Employee has continued to be an employee of the Company throughout
such period, then, on the third business day following the three (3) month
anniversary of the Change of Control, the Company shall pay Employee, in a
single lump-sum, in addition to any other compensation provided for in the
Employment Agreement, a second one-third (1/3) installment of the "stay-put"
payment, less any income, excise, employment or other tax withholdings which
the Company is required by law to deduct therefrom.
<PAGE>
(c) If, during the period beginning on the date first set forth in this
Agreement and ending on the nine (9) month anniversary of a Change of
Control, Employee has continued to be an employee of the Company throughout
such period, then, on the third business day following the nine (9) month
anniversary of the Change of Control, the Company shall pay Employee, in a
single lump-sum, in addition to any other compensation provided for in the
Employment Agreement, a third and final one-third (1/3) installment of the
"stay-put" payment, less any income, excise, employment or other tax
withholdings which the Company is required by law to deduct therefrom.
(d) This Amendment shall automatically terminate on June 30, 1998 unless a
Change of Control has occurred on or prior to June 30, 1998, in which case
this Amendment shall remain in effect at least until the nine (9) month
anniversary of the Change of Control, and until full payment to Employee of
all payments to which Employee has become entitled at that time.
(e) In the event (i) the Company, without "cause", terminates Employee's
employment or gives Employee notice of such termination, or (ii) Employee
has terminated his or her employment or given notice of such termination by
reason of a material breach by the Company of the terms of the Employment
Agreement (including but not limited to the terms set forth on Exhibit A
thereto), then Employee shall become entitled to the full "stay-put"
payment, and shall be paid any and all unpaid installments of the "stay-put"
payment on the third business day after his or her termination of employment
with the Company.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
ATTEST: GRC INTERNATIONAL, INC.
By:
- ----------------------------------- ------------------------------------
Thomas E. McCabe Jim Roth
Sr. Vice President, General Counsel President & Chief Executive Officer
& Sec'y
WITNESS EMPLOYEE
- ----------------------------------- ---------------------------------------
(Signature)
---------------------------------------
(Please print name)
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
BY:
----------------------------------------
LESLIE B. DISHAROON, COMMITTEE CHAIRMAN
<PAGE>
Exhibit 10.21
-------------
GRC INTERNATIONAL, INC.
EMPLOYMENT AGREEMENT
(SENIOR VICE PRESIDENT-DIRECT REPORT TO CEO)
THIS EMPLOYMENT AGREEMENT is made in Vienna, Virginia as of ____________________
by and between _________________________________________________________________
(hereinafter referred to in the first person or as "Employee") and GRC
International, Inc., a corporation with its principal offices at 1900 Gallows
Road, Vienna, Virginia 22182 ("Company"). The term "Company" shall also include
any parent, subsidiary or affiliate of the Company. As a condition to, and in
consideration of, the Company's employment of Employee, the parties mutually
agree as follows:
1. DUTIES.
------
(a) I agree to work for the Company in the capacity set forth in Item 1(a) of
Exhibit A attached hereto. My duties will include all of those generally
associated with said position, subject to the direction and assignment of the
Company's Board of Directors. The duties assigned to me shall be performed at
the place of employment specified in Item 1(b) of Exhibit A or at such other
location as the Board of Directors may determine is in the best interest of the
Company. All of my working time and energies shall be devoted to the foregoing
duties. I will inform the Company, in writing, if I engage in any outside
business activity, and I will obtain the prior written approval of the Company,
if I engage in any outside business activity which (i) requires the use of
skills for which I was hired by the Company or the use of skills attained during
the course of my employment with the Company or (ii) would, in the opinion of
the Company, compete with or conflict with my employment with the Company. While
employed by the Company, absent the expressed, prior written authorization of
the Company's Board of Directors, I will not, directly or indirectly, engage in
any activity competitive with or adverse to the Company's business or welfare,
whether alone, as a partner of any partnership or joint venture or as an
officer, director, employee, or holder of 5% or more of any class of stock, of
any corporation.
(b) I agree that for a period of one year immediately following termination
(voluntary or otherwise) of my employment with the Company, I will not interfere
with the business of the Company by inducing an employee to leave the Company's
employment, by inducing a consultant to sever the consultant's relationship with
the Company, or by inducing a customer to sever the customer's relationship with
the Company.
(c) This Agreement cancels and replaces in their entirety any and all
previous employment agreements entered into between me and the Company or any of
its subsidiaries.
2. INTELLECTUAL PROPERTY.
---------------------
(a) In this Agreement, (i) "Intellectual Property" means any patent,
trademark, copyright, semiconductor mask right, trade secret, invention,
discovery, design, idea or improvement (whether or not any of the foregoing are
patentable, protectable by copyright, or otherwise protectable), and (ii) the
word "made", when used with "Intellectual Property", means made, devised,
developed, conceived or reduced to practice. Exhibit B to this Agreement
contains a complete list of all Intellectual Property I consider proprietary to
me, and, during my employment with the Company, I agree to update Exhibit B from
time to time as may be necessary to keep it current. I will not incorporate or
permit to be incorporated into any work performed for or on behalf of the
Company any Intellectual Property proprietary to me or any third party.
(b) I will disclose to the Company all Intellectual Property made by me,
alone or with others, during any period of employment with the Company. All such
disclosures shall be reviewed by the Company in confidence to determine any
issues which may arise.
<PAGE>
(c) I will assign to the Company all right, title and interest in and to all
Intellectual Property made at any time by me alone or with others during or
after my employment with the Company, if such Intellectual Property was made
using Company equipment, supplies, facilities, or trade secret information, or
such Intellectual Property either (i) relates at the time of conception or
reduction to practice of the invention to the Company's business, or actual or
demonstrably anticipated research or development of the Company; or (ii) results
from any work performed by me for the Company. All Intellectual Property subject
to this paragraph shall remain Company property whether or not so disclosed or
assigned to the Company. I will cooperate fully with the Company during and
after employment in accomplishing the intent of this provision and execute such
instruments and documents reasonably requested by the Company, in order to more
fully vest in the Company all ownership rights in the Intellectual Property. In
addition, I irrevocably appoint the Company and each of its officers as my agent
and attorney-in-fact to act in my name and stead to execute and file any
documents and to do all other lawfully permitted actions to further the
prosecution, issuance and enforcement of patents, copyrights and other
proprietary rights with the same force and effect as if executed and delivered
by me.
(d) The provisions of the foregoing Section 2(c) shall not apply to an
invention developed by me entirely on my own time without using Company
equipment, supplies, facilities, or trade secret information except for those
inventions that either (i) relate at the time of conception or reduction to
practice of the invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company; or (ii) result from any work
performed by me for the Company.
3. PROPRIETARY INFORMATION. I understand that in the course of my employment
-----------------------
with the Company, I will be making use of, acquiring or adding to proprietary
and/or confidential information and materials of the Company or of other parties
("Proprietary Information"). I will not disclose or use any Proprietary
Information either during or after my employment with the Company, except to the
extent expressly authorized in writing by an officer of the Company. The
following are some examples of Proprietary Information, even if not marked or
identified as such:
(i) Computer software of all kinds, source and object codes, algorithms,
coding sheets, compilers, assemblers, design concepts, routines and subroutines,
and all related documents and materials;
(ii) Business practices, marketing techniques, mailing lists, purchasing
information, price lists, pricing policies, quoting procedures, customer and
prospective customer lists and information, and all materials or information
relating to the manner in which the Company does business.
(iii) Discoveries, concepts and ideas, whether or not patentable, protectable
by copyright, or otherwise protectable, trade secrets, "know-how," production
processes, research and development activities, and information on products or
programs;
(iv) Financial information, cost structure, bidding strategy, salary
structure, and such other information not in the public domain as may be helpful
to competitors or harmful to the Company, its customers or employees.
(v) Any other information, materials or documents related to the business or
activities of the Company which are not generally known to others engaged in
similar businesses or activities; and
(vi) All ideas which are derived from my access to or knowledge of any of the
above.
4. CONFLICTS OF INTEREST. I have read and understood the Company's Corporate
---------------------
Standards of Conduct, and while employed by the Company, I agree to abide by
said Standards of Conduct, as the same may be amended from time to time, and to
complete the Company's Ethics Questionnaire as required by the Company from time
to time. Except as fully disclosed in a document attached to this agreement, I
am not a party to any agreement or understanding with any other person or
business, nor am
-2-
<PAGE>
I subject to any other legal restriction or obligation, which would in any way
prohibit, impede or hinder my employment with the Company or the performance of
my duties in the course of such employment.
5. COMPENSATION.
------------
(a) During the term of my employment hereunder, the Company shall pay me the
annual salary set forth in Exhibit A, Item 3(a) ("Gross Annual Salary").
(b) In addition to the Gross Annual Salary, I shall be entitled to receive
the additional compensation, if any, specified in Exhibit A, Item 3(b)
("Additional Compensation").
6. DISABILITY. If I am unable to fulfill the duties of my position by
----------
reason of any illness, incapacity or disability, my salary shall be payable for
only 90 days following the onset of such illness, incapacity or disability,
provided, however, that if I (i) have applied for insurance benefits under the
Company's long-term disability policy during said 90 day period, and (ii) have
not yet begun to receive payments under said policy during said 90 day period,
then my salary shall continue to be payable for up to 180 days following the
onset of such illness, incapacity or disability until I begin to receive such
payments. During the foregoing 90 day period (or 180 day period, if applicable),
my salary, to the extent not covered by the Company's short-term disability
benefits, shall be paid through the use of my sick leave, if any, accumulated
prior to January 1, 1994, but if such sick leave is or becomes exhausted, my
salary shall nevertheless be paid for the 90 day period (or 180 day period, if
applicable). If I shall return to full employment and full discharge of my
duties during the term of this Agreement, full compensation shall be
prospectively reinstated for any remaining term of this Agreement.
7. TERMINATION AND SEVERANCE.
-------------------------
(a) Subject to Section 7(f) regarding a Change of Control, this Agreement may
be terminated by either party without Cause on six (6) months written notice to
the other party. Subject to Section 7(f) regarding a Change of Control, this
Agreement may be terminated by the Company immediately for Cause by written
notice to me. For purposes of this Section 7, "Cause" for termination shall
exist in the event of my dishonesty, chronic absenteeism, conviction of a
felony, conviction of a misdemeanor involving moral turpitude, or material
breach of this Agreement.
(b) To the maximum extent permitted by law, I hereby expressly authorize the
Company in advance upon my termination to deduct from my final paycheck(s) and
from my paid time off (PTO) check all amounts I owe the Company (including but
not limited to repayment of advances, loans or any other obligations).
(c) Upon termination of employment, I will execute and comply with the
Employee Termination Certificate attached hereto as Exhibit C, and deliver to
the Company all notes, data, tapes, lists, reference materials, sketches,
drawings, memoranda, records and other documents which are in my possession or
control belonging to the Company or relating to its business.
(d) Termination of this Agreement will not relieve me from my obligations
under Sections 1(b), 2 and 3 of this Agreement, which, by their respective
terms, continue beyond the termination of this Agreement.
(e) In the event of my death, this Agreement will terminate and all accrued
and unpaid compensation and expenses, less all amounts I owe the Company
(including but not limited to repayment of advances, loans or any other
obligations), will be payable to my estate.
(f) Notwithstanding any other provision of this Agreement to the contrary,
at any time during the thirty (30) month period following a Change of Control
(as hereinafter defined),
-3-
<PAGE>
(i) if the Company (A) without Cause, terminates my employment or
terminates this Agreement or gives me notice of either of such
terminations, (B) materially diminishes my level of responsibility
or position in the Company, (C) materially diminishes my salary or
my bonus potential, (D) fails to provide me with any material
benefit or perquisite provided to any other executive in a
comparable position, (E) requires me to relocate to an office more
than 25 miles from my place of employment immediately prior to the
Change of Control, (F) materially breaches this Agreement
(including but not limited to the terms set forth on Exhibit A
hereto) in any other way, then I shall receive, in addition to any
other compensation provided for in this Agreement, a lump-sum
severance payment on the date of termination of my employment in an
amount equal to two (2) times the Gross Annual Salary, less any
income, excise, employment or other tax withholdings which the
Company is required by law to deduct therefrom; and
(ii) if the Company takes any action described in clauses (A) through
(F) of paragraph (f)(i) above, then the Company shall provide me
with the same level of employee benefits I have been receiving
immediately prior to such action, and such benefits shall be
provided until the earlier of (A) such time as I obtain new
benefits coverage by reason of new employment, or (B) the two (2)
year anniversary of my termination of employment with the Company;
and
(iii) if the Company takes any action described in clauses (A) through
(F) of paragraph (f)(i) above and fails to provide me with any
benefit required under paragraph (f)(i) or (f)(ii) above, then the
Company shall reimburse me for any legal fees and expenses I incur
in successfully enforcing my rights under either or both of said
paragraphs.
(g) For purposes of this Agreement, a Change of Control shall mean the
satisfaction of the conditions set forth in any one of the following paragraphs:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in
Sections 13(d) and 14(d) thereof, except that neither (A) the Company or any of
its subsidiaries, (B) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (C) an
underwriter temporarily holding securities pursuant to an offering of such
securities, nor (D) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company shall be included in such term) (a "Person")
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding securities; or
(ii) during any period of up to two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board of Directors of the Company (the
"Board") and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction described
in clause (i), (iii) or (iv) of this paragraph) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such
-4-
<PAGE>
surviving entity outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires more than 50% of
the combined voting power of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(h) Notwithstanding any other provision of this Agreement, in the event that
any payment or benefit received or to be received by the Employee in connection
with a Change of Control or the termination of the Employee's employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any Person whose actions result in a Change of
Control or any person affiliated with the Company or such Person) (all such
payments and benefits, including the Severance Benefits, being hereinafter
called the "Total Benefits"), would be subject (in whole or in part) to the
excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the Severance Benefits shall be
reduced to the extent necessary so that no portion of the Total Benefits is
subject to the Excise Tax if (A) the net amount of such Total Benefits, as so
reduced, (and after deduction of the net amount of federal, state and local
income taxes and FICA and Medicare taxes on such reduced Total Benefits) is
greater than (B) the excess of (i) the net amount of such Total Benefits,
without deduction (but after deduction of the net amount of federal, state and
local income taxes and FICA and Medicare taxes on such Total Benefits), over
(ii) the amount of Excise Tax to which the Employee would be subject in respect
of such Total Benefits. For purposes of determining whether and the extent to
which the Total Benefits will be subject to the Excise Tax, (i) no portion of
the Total Benefits the receipt or enjoyment of which the Employee shall have
effectively waived in writing prior to the Employee's date of termination of
employment shall be taken into account, (ii) no portion of the Total Benefits
shall be taken into account which in the opinion of tax counsel selected by the
Company does not constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code, and (iii) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Benefits shall be determined
by the Company's independent auditors in accordance with the principles of
Sections 280G(d)(3) and (d)(4) of the Code. For purposes of this Section 7(h),
the term "Severance Benefits" means the benefits provided for by Section 7(f)
hereof.
8. NOTICE.
------
(a) Any notice to be given to me under this Agreement shall be in writing and
delivered by (i) registered or certified mail, return receipt requested; (ii)
express courier; or (iii) hand-delivery, at an address specified for me in this
Agreement or in any Exhibit hereto or at such other address of which written
notice has been given to the Company by me by any of the foregoing means.
(b) Any notice to be given to the Company under this Agreement shall be in
writing and delivered by any of the means specified in subsection (a) above, to
the President, with a copy to the Senior Vice President, General Counsel &
Secretary, GRC International, Inc., 1900 Gallows Road, Vienna, Virginia 22182.
9. DISPUTES.
--------
(a) This Agreement has been executed in and shall be governed by the laws of
the Commonwealth of Virginia.
(b) Any controversy or claim arising out of or relating to Employee's
employment or this Agreement shall be resolved in the courts of Fairfax County,
Virginia, and Employee hereby submits to the jurisdiction of such courts, and
agrees to accept service of process from such courts.
-5-
<PAGE>
(c) I understand and agree that the Company will suffer irreparable harm if I
breach any of my obligations under this agreement and that monetary damages may
be inadequate to compensate for such breach. Accordingly, in the event of a
breach or threatened breach by me, the Company, in addition to and not in
limitation of any other rights, remedies or damages available to it at law or in
equity or otherwise, shall be entitled to a injunctive relief preventing any
such breach by myself or by my partners, agents, representatives, servants,
employers, employees and/or any and all persons directly or indirectly acting
for or with me.
10. ASSIGNMENT. My services are unique and personal. Accordingly, I may not
----------
assign any rights or delegate any duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Company.
11. ENTIRE AGREEMENT. This agreement, together with all documents attached to
----------------
this agreement or specifically referred to in it, contains the entire agreement
and understandings by and between the Company and me with respect to the
covenants described in this agreement, and any representation, promise,
agreement or understanding, written or oral, not contained in this agreement
shall be of no force or effect. No change or modification of this agreement
shall be valid or binding unless the change or modification is in writing and
signed by the parties to this agreement. Any representation contrary to this
agreement, express or implied, written or oral, is hereby disclaimed. Nothing in
this agreement shall obligate the Company to employ me for any length of time.
No waiver of any provision of this agreement shall be valid unless it is in
writing and signed by the party against whom such waiver is sought to be
enforced, and no waiver of any provision shall be deemed a waiver of any other
provision or a waiver of the same provision at any other time.
12. SEVERABILITY. Any provision of this agreement which may be determined to
------------
be unenforceable, invalid or illegal shall be deemed stricken from this
agreement and all remaining provisions shall continue in full force and effect.
13. REASONABLENESS OF RESTRICTIONS. I have carefully read and considered the
------------------------------
provisions of this agreement and, having done so, agree that the restrictions
set forth in this agreement are fair and reasonable and are reasonably required
for the Company's protection. This agreement shall be construed fairly as to all
parties and not in favor of or against any party, regardless of which party
prepared this agreement. In the event that, notwithstanding the foregoing, any
part of his agreement shall be held to be invalid or unenforceable, the
remaining parts of the agreement shall nevertheless continue to be valid and
enforceable as though the invalid or unenforceable parts had not been included
in the agreement. If any provision is held invalid or unenforceable with respect
to particular circumstances, it shall nevertheless remain in full force and
effect in all other circumstances.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first set forth above.
ATTEST: GRC INTERNATIONAL, INC.
By:
- ----------------------------------- -----------------------------------
Thomas E. McCabe Jim Roth
Sr. Vice President, General Counsel President & Chief Executive Officer
& Secretary
WITNESS EMPLOYEE
- ----------------------------------- --------------------------------------
(Signature)
-6-
<PAGE>
--------------------------------------
(Please print name)
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
By:
---------------------------------------
Leslie B. Disharoon, Committee Chairman
-7-
<PAGE>
EXHIBIT A
---------
DETAILS OF EMPLOYMENT
---------------------
EMPLOYEE:
ITEM 1(a) Position:
ITEM 1(b) Place of Employment:
ITEM 2 Effective Date of Employment Agreement:
Effective Date of this Exhibit:
ITEM 3(a) Gross Annual Salary:
ITEM 3(b) Additional Compensation (if any):
ITEM 4 Notice to Employee:
---------------------------------- ------------------------------------
and/
---------------------------------- or ------------------------------------
---------------------------------- ------------------------------------
EMPLOYEE: GRC INTERNATIONAL, INC.
By:
- ------------------------------ -----------------------------------
Jim Roth
President & Chief Executive Officer
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
By:
---------------------------------------
Leslie B. Disharoon, Committee Chairman
-8-
<PAGE>
EXHIBIT B
---------
SCHEDULE OF INTELLECTUAL PROPERTY
---------------------------------
I developed or conceived, and consider proprietary to me, the following
Intellectual Property, as that term is defined in the Employment Agreement to
which this Exhibit is attached:
EMPLOYEE
----------------------------------
(Signature)
----------------------------------
(Please print name)
----------------------------------
(Date)
-9-
<PAGE>
EXHIBIT C
---------
TERMINATION STATEMENT
---------------------
(to be signed upon termination of employment)
1. I, __________________________________________________(employee's name), am
cognizant of my legal obligations, as stated in a certain EMPLOYMENT AGREEMENT
dated __________________ between myself and GRC International, Inc. (together
with its subsidiaries, the "Company"), and I hereby specifically reaffirm all of
the terms stated in that agreement.
2. I hereby certify that all materials related directly or indirectly to my
employment with the Company have been returned to the Company. I further certify
that no computer listings, programs, object codes, source codes, product
development guides, flowcharts, test equipment, drawings, blueprints or other
materials owned by the Company or provided to or used by me in connection with
my employment at the Company, whether in machine-readable form or otherwise,
have been retained by me or given to any other third person or entity in
anticipation of my employment termination or for any other reason, and I also
certify that none of those materials will be removed from the Company's premises
by me.
3. I also certify that I have returned all company identification and credit
cards issued to me and all keys to Company and/or customer property that have
been in my possession.
4. I am not aware of any action or situation involving any violation of the
Company's Corporate Standards of Conduct by any employee, director, consultant
or representative of the Company, except as follows:
5. My forwarding addresses are as follows:
HOME ADDRESS BUSINESS ADDRESS
-------------------------------- --------------------------------
-------------------------------- --------------------------------
-------------------------------- --------------------------------
-------------------------------- --------------------------------
EMPLOYEE:
--------------------------------
(Signature)
--------------------------------
(Please print name)
--------------------------------
(Date)
-10-
<PAGE>
GRC INTERNATIONAL, INC.
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment ("Amendment") to Employment Agreement is made in Vienna, Virginia
as of ____________________________ by and between ______________________________
(hereinafter referred to in the first person or as "Employee") and GRC
International, Inc., a corporation with its principal offices at 1900 Gallows
Road, Vienna, Virginia 22182 ("Company"). Any term used in this Amendment which
is not otherwise defined herein shall have the meaning assigned to such term in
the Employment Agreement.
BACKGROUND
----------
A. Employee and the Company are parties to an Employment Agreement dated _______
______________________ ("Employment Agreement").
B. The Company has announced that it has retained Smith Barney, Inc. as its
financial advisor to advise the Company with respect to a full range of
financial and strategic options, which could include, among other things, a
merger or acquisition of the entire Company.
C. In addition to, and without prejudice to, the benefits provided to Employee
in the Employment Agreement, the Company desires to amend the Employment
Agreement to provide a special "stay-put" payment to Employee to induce
Employee to remain an employee of the Company, in spite of the uncertainties
created in the present environment. The aggregate amount of this special
"stay-put" payment shall be $________________________________.
1. "STAY-PUT" PAYMENT.
------------------
(a) If, during the period beginning on the date first set forth in this
Agreement and ending on the date of a Change of Control, Employee has
continued to be an employee of the Company throughout such period, then, on
the third business day following the date of the Change of Control, the
Company shall pay Employee, in a single lump-sum, in addition to any other
compensation provided for in the Employment Agreement, an initial one-third
(1/3) installment of the "stay-put" payment, less any income, excise,
employment or other tax withholdings which the Company is required by law to
deduct therefrom.
(b) If, during the period beginning on the date first set forth in this
Agreement and ending on the three (3) month anniversary of a Change of
Control, Employee has continued to be an employee of the Company throughout
such period, then, on the third business day following the three (3) month
anniversary of the Change of Control, the Company shall pay Employee, in a
single lump-sum, in addition to any other compensation provided for in the
Employment Agreement, a second one-third (1/3) installment of the "stay-put"
payment, less any income, excise, employment or other tax withholdings which
the Company is required by law to deduct therefrom.
<PAGE>
(c) If, during the period beginning on the date first set forth in this
Agreement and ending on the nine (9) month anniversary of a Change of
Control, Employee has continued to be an employee of the Company throughout
such period, then, on the third business day following the nine (9) month
anniversary of the Change of Control, the Company shall pay Employee, in a
single lump-sum, in addition to any other compensation provided for in the
Employment Agreement, a third and final one-third (1/3) installment of the
"stay-put" payment, less any income, excise, employment or other tax
withholdings which the Company is required by law to deduct therefrom.
(d) This Amendment shall automatically terminate on June 30, 1998 unless a
Change of Control has occurred on or prior to June 30, 1998, in which case
this Amendment shall remain in effect at least until the nine (9) month
anniversary of the Change of Control, and until full payment to Employee of
all payments to which Employee has become entitled at that time.
(e) In the event (i) the Company, without "cause", terminates Employee's
employment or gives Employee notice of such termination, or (ii) Employee
has terminated his or her employment or given notice of such termination by
reason of a material breach by the Company of the terms of the Employment
Agreement (including but not limited to the terms set forth on Exhibit A
thereto), then Employee shall become entitled to the full "stay-put"
payment, and shall be paid any and all unpaid installments of the "stay-put"
payment on the third business day after his or her termination of employment
with the Company.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
ATTEST: GRC INTERNATIONAL, INC.
By:
- ----------------------------------- -----------------------------------
Thomas E. McCabe Jim Roth
Sr. Vice President, General Counsel President & Chief Executive Officer
& Sec'y
WITNESS EMPLOYEE
- ----------------------------------- --------------------------------------
(Signature)
--------------------------------------
(Please print name)
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
By:
---------------------------------------
Leslie B. Disharoon, Committee Chairman
<PAGE>
Exhibit 10.23
-------------
FIRST AMENDMENT TO
------------------
BUILDING LEASE
--------------
This FIRST AMENDMENT TO BUILDING LEASE is made and entered into on January
26, 1996, by and between SANTA BARBARA CORPORATE CENTER, LLC, a California
limited liability company ("Lessor") and GRC INTERNATIONAL, INC., a Delaware
corporation ("Lessee").
RECITALS:
A. Bermant Development Company, as lessor, and GRC International Inc.,
as lessee, entered into a Building Lease dated as of April 25, 1995 (the
"Lease"), pursuant to which Lessee agreed to lease approximately 50,000 rentable
sq. ft. (the "Premises") of a new building (the "Building") to be constructed on
the property at 5383 Hollister Avenue, Santa Barbara, California (the
"Property").
B. Lessor is the successor in interest to Bermant Development Company.
C. Section 10 of the Lease relates to the provision of utilities to the
Building by the Lessor and describes the hours of operation which the Lessor
will furnish heating, ventilation and air conditioning to the Premises as an
operating expense of the Building.
D. The parties desire to provide for the delivery of and payment for
heating, ventilation and air conditioning on holidays and during hours not
included within the customary operating hours as provided in Section 10 of the
Lease.
NOW, THEREFORE, the parties agree as follows:
1. Section 10 of the Lease is hereby amended in its entirety to
read as follows:
"10. UTILITIES.
---------
The Lessor, as an operating expense of the Building,
shall furnish heating, ventilation and air conditioning Monday through
Friday from 6:00 a.m. to 8:00 p.m. and on Saturday from 8:00 a.m. to 6:00
p.m.
-1-
<PAGE>
except for New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Lessee shall have the right to request that
heating, ventilation and air conditioning be furnished to one or both
floors of the Premises in addition to the days and hours described above.
The Lessee shall give the Lessor advance notice of its need for after-hours
heating, ventilation and air conditioning as follows: (i) if such service
is required on a weekday evening, notice shall be given by noon on the day
service is required, (ii) if such service is required for a midweek
holiday, notice shall be given by noon on the immediately preceding
business day, and (iii) if such service is required over a weekend or
holiday weekend, notice shall be given by noon on the immediately-preceding
Friday. If the Lessor installs an automated activation system that may be
accessed directly by the Lessee, no advance notice shall be required. After
hours heating, ventilation and air conditioning shall be charged at the
rate calculated from time to time by the Lessor's mechanical engineer, plus
a 15% service charge. The initial hourly rate for after-hours heating,
ventilation and air conditioning on the first floor (including the service
charge) shall be $20 per hour. The initial hourly rate for after-hours
heating, ventilation, and air conditioning for the second floor (including
the service charge) shall be $7.14 per hour (which equals the $20 per hour
basic charge less energy costs, which are separately metered to the Lessee
on the second floor). The hourly rate for after-hours heating, ventilating
and air conditioning may be changed from time to time upon written notice
from the Lessor to the Lessee. Charges for after-hours heating, ventilation
and air conditioning shall be paid by the Lessee as additional rent,
payable monthly as provided in Section 3.6 hereof.
The Lessee shall pay for all water, gas, heat, light,
power, janitorial services and other utilities and services supplied to the
Premises, together with any taxes thereon. The Lessor shall install a
separate meter or submeter for the delivery of electricity to the Premises.
If any other services are not separately metered or charged to the Lessee,
the Lessee shall pay a pro rata proportion, as part of operating expenses,
based on leasable area, of all charges jointly metered or charged with
other premises. The Lessor shall not be liable in damages or otherwise
unless due to the Lessor's gross negligence or failure to comply with its
obligations hereunder for any failure or
-2-
<PAGE>
interruption any utility services being furnished to the building and no
such failure or interruption shall entitle the Lessee to terminate this
Lease. In no event shall the Lessor be liable for any such failure or
interruption caused by the exercise of governmental authority, strikes,
riots, acts of God, war, adverse weather conditions, fire, flood or
casualties or acts of third parties beyond the Lessor's control. The
operation and control of utilities, air conditioning and any other energy
system is subject to compliance with any government authority governing the
regulation and use of energy systems within the commercial office or
industrial building structure. The Lessee shall not subject any of the
mechanical, electrical, plumbing, sewer or other utility or service systems
or equipment to exercise or use which causes damage to said systems or
equipment. Any such damages to equipment caused by the Lessee overloading
such equipment shall be rectified by the Lessee, or may, at the Lessor's
option, be rectified by the Lessor, at the Lessee's sole cost and expense."
2. Except as expressly modified and amended herein, all of the
terms and provisions of the Lease are hereby ratified and confirmed.
LESSEE: GRC INTERNATIONAL, INC., a Delaware
corporation
By: /s/ Philip R. Pietras
----------------------------------
Philip R. Pietras,
Chief Financial Officer
LESSOR: SANTA BARBARA CORPORATE CENTER, LLC,
a California limited liability company
By: /s/ Jeffrey C. Bermant
----------------------------------
Jeffrey C. Bermant,
Manager
-3-
<PAGE>
SECOND AMENDMENT TO
-------------------
BUILDING LEASE
--------------
This Second Amendment to Building Lease is made and entered into as of May
9, 1997 between SANTA BARBARA CORPORATE CENTER, LLC, as Lessor, and GRC
INTERNATIONAL, INC., as Lessee.
RECITALS:
A. Bermant Development Company (Lessor's predecessor in interest), as
lessor, and GRC International, Inc., as lessee, entered into a Building Lease
dated as of April 25, 1995 (the "Original Lease") pursuant to which Lessee
leased from Bermant Development Company approximately 50,000 rentable square
feet (the "Premises") in a building planned for construction by Bermant
Development Company of approximately 80,000 rentable square feet. (the
"Building") on the property commonly known as 5383 Hollister Avenue, Santa
Barbara, California (the "Property").
B. The Original Lease was amended by a First Amendment to Building Lease
dated January 26, 1996 between Lessor and Lessee (the Original Lease, as so
amended, is referred to in this Amendment as the "Lease").
C. The Lease provides that, upon completion of the demising walls in the
Building, the parties would measure the actual square footage of the Premises
using the American National Standard ANSI Z65.1-1980 as published by the
Building Owners and Managers Association International (the "1980 BOMA
Standard"). Within ten (10) days following the completion of the measurements,
Lessor and Lessee agreed to complete an Addendum attached to the Lease setting
forth the total number of square feet in the Premises, the total square footage
in the Building, Lessee's percentage of the Building and Common Area, the
Initial Monthly Rental Installments, and the Initial Annual Rent.
D. The 1980 BOMA Standard disproportionately allocated the load factor
attributable to lobby and common areas in a building to tenants occupying the
same floor of the building in which the lobby and common areas were located.
E. The 1980 BOMA Standard was revised by Standard Measurement ANSI
Z65.1-1996 (the "1996 BOMA Standard") to allocate lobby and common area load
factors to all tenants of a building on a more equitable basis. The 1996 BOMA
Standard therefore revised the way in which rentable square footages are
calculated.
F. The parties agree that the 1996 BOMA Standard is a more equitable way
in which to measure rentable square footage and desire to use the 1996 BOMA
Standard, subject to the requirement
-4-
<PAGE>
that the application of the Standard not result in an increased financial burden
on Lessee.
G. The Lease provides that the Initial Annual Rent would be $1.32 per
sq. ft. per month, based upon the square footages measured with the 1980 BOMA
Standard. Using the 1980 BOMA Standard, the Premises measured to 50,087 sq. ft.
If the 1996 BOMA Standard is applied to measure the Premises, the rentable
square footage increases to 52,119 sq. ft.
H. To accommodate the use of the 1996 BOMA Standard, the parties have
agreed to reduce the per square foot rent to $1.2639 and to apply the 1996 BOMA
Standard to the percentage used for the Building and the Common Area.
I. The parties also desire to amend the portion of the Lease dealing
with the hours of operation during which Lessor will furnish heating,
ventilation, and air conditioning to the Premises, as an operating expense for
the Building.
Now, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. INCORPORATION OF RECITALS
-------------------------
The recitals set forth above are incorporated herein as if
fully set forth at this point.
2. PREMISES
--------
The parties agree that the rentable square footage of the Premises is
52,119 sq. ft. The total rentable square footage of the Building is 81,870 sq.
ft.
3. LESSEE'S PERCENTAGES
--------------------
For purposes of the Lease, the Lessee's Building Percentage is 63.66%. The
Lessee's Common Area Percentage is 63.66%.
4. TERM
----
The initial term of the Lease is fifteen (15) years. The initial term shall
commence on March 1, 1997 and terminate on February 28, 2012.
5. RENT
----
The Rent Commencement Date shall be February 15, 1997. The Initial Annual
Rent is $790,498.08. The Initial Monthly Rental Installments are $65,874.84. The
adjustment of the rent as described in Section 3.5 of the Lease shall be applied
to the Initial Annual Rent described above.
-5-
<PAGE>
6. AMENDMENT OF SECTION 10 OF LEASE
--------------------------------
The first sentence of Section 10 of the Lease is amended to read in its
entirety as follows:
"Lessor, as an operating expense of the Building, shall
furnish heating, ventilation, and air conditioning Monday
through Friday from 7:00 A.M. to 7:00 P.M., except for
New Years Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day."
7. ADDENDUM TO LEASE
-----------------
The Addendum to Building Lease referred to in the Lease is hereby
superseded in its entirety by thin First Amendment.
8. NO FURTHER AMENDMENTS
---------------------
Except as expressly modified herein, the terms and conditions of the Lease
are hereby ratified and approved.
LESSOR: SANTA BARBARA CORPORATE CENTER, LLC
By: /s/ Jeffrey C. Bermant
-----------------------------------
Jeffrey C. Bermant,
Manager
LESSEE: GRC INTERNATIONAL, INC., a
Delaware corporation
By: [SIGNATURE APPEARS HERE]
-----------------------------------
Name: Herbert L. Raicith
Title: Assistant General Counsel
and Assistant Secretary
-6-
<PAGE>
GRC International, Inc. Exhibit 11
Statement of Computation of Earnings per Share ----------
(in thousands, except for per share amounts)
<TABLE>
<CAPTION> Year Ended June 30,
-------------------------------------
1997 1996 1995
<S> <C> <C> <C>
PRIMARY
Weighted Average Number of Shares of Common
Stock Outstanding 9,338 9,172 9,001
Net Effect of Dilutive Stock Options
Based on the Treasury Stock Method 176 - 392
-------------------------------------
Weighted Average Shares Outstanding 9,514 9,172 9,393
-------------------------------------
Income (Loss) from Continuing Operations 13,861 (700) 7,070
Loss from Discontinued Operations (31,611) (16,937) (2,040)
-------------------------------------
Net Income (Loss) (17,750) (17,637) 5,030
Per Share Amount:
Income (Loss) from Continuing Operations 1.46 (0.08) 0.75
Loss from Discontinued Operations (3.33) (1.84) (0.21)
-------------------------------------
Net Income (loss) (1.87) (1.92) 0.54
=====================================
FULLY DILUTED
Weighted Average Number of Shares of Common
Stock Outstanding 9,338 9,172 9,001
Net Effect of Dilutive Stock Options
Based on the Treasury Stock Method 176 490 392
Net Effect of Convertible Debenture
Based on the Treasury Stock Method,
if Converted Method 329 - -
-------------------------------------
Weighted Average Shares Outstanding 9,843 9,662 9,393
-------------------------------------
Income (Loss) from Continuing Operations 13,861 (700) (7,070)
Interest and Amortization on Convertible Debenture 425 - -
-------------------------------------
Adjusted Income (Loss) from Continuing Operations 14,286 (700) 7,070
Loss from Discontinued Operations (31,611) (16,937) (2,040)
-------------------------------------
Adjusted Net Income (Loss) (17,325) (17,637) 5,030
=====================================
Per Share Amount:
Adjusted Income (Loss) from Continuing Operations 1.45 (0.07) 0.75
Loss from Discontinued Operations (3.21) (1.76) (0.21)
-------------------------------------
Adjusted Net Income (Loss) (1.76) (1.83) 0.54
=====================================
</TABLE>
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF REGISTRANT
--------------------------
As of June 30, 1997, the Registrant had no significant active subsidiaries.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
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