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, 1998
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.
1-7517 (703) 506-5000 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, 1998, the aggregate market value of the Registrant's
voting common stock held by non-affiliates was $61,481,621. As of July 31, 1998,
there were 10,213,482 shares of the Registrant's $.10 par value common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Corporation's 1998 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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TABLE OF CONTENTS
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Page
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PART I.
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Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
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 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 42
PART III.
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 43
Signatures 44
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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
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General
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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 1998, 1997 and 1996 were 156, 144 and 149, 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
<PAGE>
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.
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. By June 30, 1997, the Company had sold its GRC
Instruments/Dynatup, Vindicator, and Optical Service Unit ("OSU") businesses.
On December 19, 1997, the Company sold the assets and liabilities of
its Commercial Information Solutions ("CIS") business unit. Payment is based on
a royalty schedule.
On January 8, 1998, the Company sold the assets of its NetworkVUE
business unit. Payment is based on a royalty schedule.
The cash used by the discontinued operations in fiscal 1998 consisted
primarily of $1.6 million final cash payment of debt relating to an acquisition,
$1.7 million in operating expenses and $200 thousand for payment of payroll and
accounts payable accrued in fiscal 1997. The largest components of operating
expenses included payment for outside legal and financial fees, as well as
payments to consultants per agreements entered into during the closing of the
operations.
The net liability held for disposition was reduced in fiscal 1998 by
$4.3 million due primarily to the cash used by discontinued operations and the
reduction of exit accrual requirements of $750 thousand, reported as income in
the second quarter of fiscal 1998.
Patents, Trademarks, Licenses, Copyrights
-----------------------------------------
The Company has a number of patents, trademarks and trademark
applications, none of which is material to the operations of the Company.
<PAGE>
Contracts
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Government contract revenues from professional and technical services,
either as prime contractor or subcontractor, represented approximately 98%, 95%,
and 93% of the Company's total revenues for fiscal years ended June 30, 1998,
1997, and 1996, 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 1998, 1997, and 1996, approximately 49%, 60%, and 62%,
respectively, of the Company's professional and technical services revenues were
from cost reimbursable contracts, while approximately 51%, 40%, 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, 1998, the Company had a maximum contract backlog amounting
to $450 million, compared to $372 million, and $327 million for 1997 and 1996,
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, 1998,
amounted to $58 million, compared to $44 million, and $49 million for 1997 and
1996, respectively. Funded contract backlog represents the expected contract
revenues for which contract awards have been made and funded, and primarily
represent the year-end backlog of firm orders for which revenues may be expected
in the following year.
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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 AATI, ACSC, CACI, Condor, CSC, Nichols Research, SAIC, Titan
and TRW.
Employees
---------
As of June 30, 1998, the Company employed 1,160 people, comprised of
1,059 full time and 101 part time people, an increase of 35 people, or 3%, from
the 1,125 people employed at June 30, 1997, comprised of 994 full-time and 131
part-time people. At June 30, 1998, the Company had approximately 173 openings
for full-time employees, compared to approximately 210 openings at June 30,
1997.
ITEM 2. PROPERTIES
----------
All of the Company's operations are conducted in leased facilities. The
Company has approximately 30 leased facilities for continuing operations within
the United States comprising approximately 351 thousand square feet. The minimum
annual rentals for fiscal year 1999 under non-cancelable operating leases are
approximately $8.5 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 Virginia and California. The Company believes that its facilities
are adequate for its purposes. The company currently owns no real property, but
has the option to buy a 3 acre parcel in California at a nominal price.
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.
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 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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Stock Prices and Dividends
--------------------------
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The Company's common stock is traded on the New York and Pacific Stock
Exchanges. As of July 31, 1998, there were 1,314 holders of record of the
Company's common stock. Stock price information by quarter is presented in the
following table:
Market Fiscal Year
Price 1998 1997
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High Low High Low
---- --- ---- ---
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1st Quarter 7 14/16 5 38 5/8 13 3/4
2nd Quarter 7 3/16 5 1/4 18 1/4 6
3rd Quarter 6 13/16 5 9/16 8 3/8 3 3/4
4th Quarter 10 15/16 5 3/8 6 1/4 4 1/4
</TABLE>
On September 11, 1998, the closing price of the Company's common stock
was $4.81.
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
None.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
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GRC International, Inc. and Subsidiaries
FOR THE YEAR ENDED JUNE 30, 1998 1997 1996 1995 1994
----- ----- ----- ----- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Revenue $130,927 $117,599 $117,016 $132,812 $122,872
Operating income (loss) 5,402 4,622 (182)* 6,800* 6,468
Interest income (expense), net (1,866) (1,343) (518) 270 319
Income tax (provision) benefit 7,166 10,582 --- --- (299)
Cumulative effect of accounting change --- --- --- --- 1,000
------- -------- -------- -------- ------
Income (loss) from continuing operations 10,702 13,861 (700) 7,070 7,488
Gain (loss) on discontinued operations 758 (31,611) (16,937) (2,040) (375)
------- ------- -------- -------- -------
Net income (loss) $ 11,460 $(17,750) $(17,637) $ 5,030 $ 7,113
======== ======== ======== ======== =======
Basic income (loss) per share from continuing operations $ 1.09 $ 1.48 $ (0.08) $ 0.79 $ 0.83
Basic income (loss) per common share $ 1.17 $ (1.91) $ (1.92) $ 0.56 $ 0.79
Weighted average number of common shares outstanding 9,838 9,338 9,172 9,001 9,037
Diluted income (loss) per share from continuing operations $ 1.07 $ 1.45 $ (0.08) $ 0.75 $ 0.80
Diluted net income (loss) per common share $ 1.14 $ (1.76) $ (1.92) $ 0.53 $ 0.76
Weighted average number of common shares and equivalents 10,254 9,843 9,172 9,393 9,370
Working capital (excluding discontinued operations) $ 19,073 $ 20,459 $ 14,857 $ 19,688 $24,683
Net assets (liabilities) of discontinued operations $ (297) $ (4,591) $ 14,742 $ 9,975 $ 3,449
Total assets $ 71,263 $ 65,964 $ 67,070 $ 71,107 $67,230
Long-term debt (less current maturities) $ 23,256 $ 28,153** $ 16,527** $ --- $ ---
Stockholders' equity $ 27,360 $ 13,076 $ 28,675 $ 48,268 $45,040
</TABLE>
* The operating loss for 1996 reflects a write-off of $3.3 million in deferred
software and related costs, and the operating income for 1995 reflects the
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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
-------------------
Summary
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The following table sets forth for the years indicated the percentage
of total revenues for each item in the Consolidated Statements of Operations and
the percentage change of those items as compared to the prior year:
Period to
Relationship to Total Revenues Period Change
------------------------------ ---------------------
FY98 FY97 FY96 98 vs. 97 97 vs. 96
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Revenues 100% 100% 100% 11.3% 0.5%
Cost of revenues 84% 82% 85% 14.9% -3.3%
---- ---- ----
Gross Margin 16% 18% 15% -4.8% 21.6%
G&A, marketing, R&D expenses 12% 14% 12% -10.8% 15.8%
Write-Down 0% 0% 3% NM NM
-- -- -
Operating income 4% 4% 0% 16.8% NM
Net interest expense 1% 1% 0% 38.9% 159.3%
-- - --
Income (loss) from continuing operations,
before income taxes 3% 3% -1% 7.8% NM
Income tax benefit -5% -9% 0% NM NM
--- --- --
Income (loss) from continuing operations 8% 12% -1% NM NM
-- --- --
Discontinued operations, net of tax 1% -21% -14% NM NM
Loss on disposal of discontinued
operations 0% -5% 0% NM NM
-- --- --
Net income (loss) 9% -15% - 15% NM NM
"NM" indicates the percentage change is not meaningful.
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Fiscal Year 1998 Compared to Fiscal Year 1997
- ---------------------------------------------
Continuing Operations
- ---------------------
Revenues
--------
Fiscal year 1998 revenues of $130.9 million were $13.3 million, or 11%,
higher than fiscal year 1997 revenues of $117.6 million. Of the increase, $9.3
million was attributable to the award of the GCSS contract to develop a new
retail logistics information system for the United States Army.
For 1998, revenues of $130.9 million consisted of $129.7 million in
services revenues and $1.2 million in product revenues. For 1997, revenues of
$117.6 million consisted of $115.9 million in service revenues and $1.7 million
in product revenues.
<PAGE>
Cost of Revenues and Gross Profit
---------------------------------
Cost of revenues for 1998 amounted to $110.5 million, or 84% of
revenues, compared to $96.1 million, or 82% of revenues for 1997. A significant
portion of the increase in costs is a result of the GCSS contract mentioned
above.
Gross profit for 1998 amounted to $20.5 million, or 16% of revenues,
compared to $21.5 million, or 18% of revenues for 1997, a decrease of 5%. The
decrease in gross profit is primarily the result of cost overruns on certain
contracts during the current year.
Operating Expenses and Operating Income
---------------------------------------
Fiscal year 1998 total operating expenses of $15.0 million, or 12% of
revenues, were $1.9 million less than the $16.9 million, or 14% of revenues, in
operating expenses for 1997. Operating profit from continuing operations for
1998 amounted to $5.4 million compared to $4.6 million for FY 1997, an increase
of 17%. The decreased expenses and related increased operating profits were
attributable to reductions in bid and proposal and other general and
administrative expenses.
Net Interest Expense
--------------------
Net interest expense of $1.9 million for 1998, compared to net interest
expense of $1.3 million for 1997, reflects the increase in debt incurred in late
1997 in order to fund what are now discontinued operations.
Income Tax Benefit
------------------
In fiscal year 1998, the Company recognized a $7.2 million deferred tax
asset related to its net loss carryforwards for income tax purposes, bringing to
$17.9 million the total net deferred tax asset.
As a result of tax losses incurred in prior periods, the Company, at
June 30, 1998, 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 Products
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.
The Company is considering certain tax planning strategies which, in
conjunction with operating income, would enable the Company to fully utilize the
tax loss carryforward expiring in the fiscal year ending June 30, 1999. If the
Company does not generate
<PAGE>
sufficient taxable income to fully utilize such tax loss carryforward, the
maximum tax benefit will not be recognized.
Income from Continuing Operations
---------------------------------
Income from continuing operations for 1998 amounted to $10.7 million,
compared to $13.9 million for 1997. This $3.2 million decrease is primarily due
to a $3.4 million reduction in recognized income tax benefit from fiscal 1997 to
fiscal 1998.
Discontinued Operations
-----------------------
The 1998 gain on discontinued operations reflects the sale of
NetworkVUE, the last remaining business, and adjustments of estimated remaining
liabilities related to such business.
Net Income or Loss
------------------
Net income for fiscal year 1998 amounted $11.5 million, comprised of a
profit from continuing operations of $10.7 million and a profit from
discontinued operations of $758 thousand.
Net loss for fiscal year 1997 amounted to $17.8 million, comprised of a
profit from continuing operations of $13.9 million and a loss from discontinued
operations of $31.6 million.
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,
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
<PAGE>
$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 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 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
-----------------------
The net loss from discontinued operations for fiscal year 1997 amounted
to $31.6 million, compared to a loss of $16.9 million for 1996. The 1997 loss
included a substantial write down of capitalized software.
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, compared to a net loss for fiscal year 1996 of
$17.6 million, comprised of loss of $700 thousand from continuing operations and
a loss from discontinued operations of $16.9 million.
Borrowings
----------
At June 30, 1998, the Company was party to a revolving credit agreement
that provides for secured borrowings of up to $22 million, of which $14.9
million (net of cash) was utilized at June 30, 1998. The agreement extends to
January 2000, 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 up to an additional $8 million in term
<PAGE>
loan financing under a standby facility, available on an offering basis, with
borrowings thereunder due September 1, 2000, of which $4.75 million was utilized
at June 30, 1998. 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,
1998. The collateral under the Amended and Restated Revolving Credit and Term
Loan Agreement includes all of the Company's assets.
In June 1996, the Company completed a $7.5 million financing of
substantially all of its furniture and equipment. The loan was originally to be
amortized over a five year period at an interest rate of 9%, but with partial
paydowns that were made from the proceeds of the following divestitures, the
loan is now anticipated to be fully retired by the end of fiscal 1999. On April
30, 1997, the Company applied the $2 million in proceeds from the sale of its
GRC Instruments/Dynatup business against its obligations under the equipment
financing. In June and July 1997, the Company applied $1.5 million in proceeds
from the sale of its OSU business against its obligations under the equipment
financing. As of June 30, 1998, the outstanding balance on the equipment
financing was $961 thousand.
Liquidity and Capital Resources
-------------------------------
The Company had $3.6 million in cash and cash equivalents at June 30,
1998, compared to $5.8 million at June 30, 1997.
Net cash provided by continuing operations amounted to $5.6 million for
fiscal 1998, compared to $5.7 million for fiscal 1997. Net cash used in
discontinued operations amounted to $3.1 million for fiscal 1998, compared to
$12.4 million in fiscal 1997. Net cash used in investing activities for fiscal
1998 amounted to $1.8 million, compared to $3.8 million for the prior year. Net
cash used in financing activities amounted to $2.8 million for fiscal 1998,
compared to $13.6 million provided in fiscal 1997. The net decrease in cash and
cash equivalents for fiscal 1998 amounted to $2.1 million, compared to an
increase of cash and cash equivalents of $3.0 million in the prior year.
As a result of the decrease in debt and increase in net income during
fiscal 1998, the Company's ratio of total debt (net of cash) to total
capitalization amounted to 43% at June 30, 1998, compared to 67% at June 30,
1997.
For fiscal 1999, the Company expects positive cash flow, including
capital expenditures and payments on outstanding debt. Liquidity over the next
year will be determined by (a) net cash flow from operations, (b) capital
expenditures (including the possible replacement of the Company's MIS system),
(c) payments on outstanding debt, (d) receipt of payment on $2 million note due
January 31, 1999 relating to the 1995 sale of its Santa Barbara property. 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, 1998, the Company had $24.3 million of debt and equipment
lease financings, $1.0 million of which was classified as short term, and $23.3
million of which was
<PAGE>
classified as long term. The Company had $27.1 million of bank debt and
equipment lease financings at June 30, 1997.
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
$4.8 million was drawn down at June 30, 1998; a $22 million revolving line of
credit ("Revolving Credit"), of which $18.5 million was used at June 30, 1998;
and a $961 thousand debt (as of June 30, 1998) arising from the equipment
financing ("Equipment Lease") arranged with the bank's equipment leasing
subsidiary.
The Term Loan is due on September 1, 2000, and bears interest at the
bank's floating prime rate, currently 8.50% per annum. The Revolving Credit is
due on January 15, 2000, 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, 1997, and, thus, the Revolving Credit is currently repayable on
January 15, 2000. 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 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, 1998, 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.
Risk Factors
------------
The Company and its shareholders face a number of risks, including, but
not limited to the following:
- 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.
- The risk that the Company will not be sufficiently prepared for
the so-called Y2K problem, and/or that the Company may incur
Y2K-related liabilities (see the next section).
Year 2000 Issue
---------------
The Year 2000 (Y2K) problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Thus
the year 1998 is represented by the number "98" in many legacy software
applications. Consequently, on January 1, 2000, the year will jump back to "00"
in accordance with many non-Y2K compliant applications. To systems that are
non-Y2K compliant, the time will seem to have reverted back 100 years. So, when
computing basic lengths of time, the Company's computer programs, certain
building infrastructure components (including, elevators, alarm systems,
telephone networks, sprinkler systems, security access systems and certain HVAC
systems) and any additional time-sensitive software that are non-Y2k compliant
may recognize a date using "00" as the Year 1900. This could result in system
failures or miscalculations which could cause personal injury, property damage,
disruption of operations, and/or delays in payments from the Company's
customers, any or all of which could materially adversely effect the Company's
business, financial condition, or results of operations.
During the fourth quarter of fiscal 1998 the Company implemented an
internal Y2K compliance task force. The goal of the task force is to minimize
the disruptions to the Company's business which could result from the Y2K
problem, and to minimize other liabilities which the Company might incur in
connection with the Y2K problem. The task
<PAGE>
force consists of existing employees of the Company, and no new employees have
been hired specifically to address the Company's internal Y2K issues.
The Company is in the process of conducting a company-wide assessment
of its computer systems and operations infrastructure, including systems being
developed to improve business functionality, to identify computer hardware,
software, and process control systems that are not Y2K compliant. The Company
presently believes that its business-critical computer systems which are not
presently Y2K-compliant will have been replaced, upgraded or modified in the
normal replacement cycle prior to 2000.
The Company's financial accounting software system is an old system
which was built in the early 1980's on a commercial database platform by Company
employees. The Company has modified this system to be Y2K compliant, but its Y2K
compliance has not been tested by any independent party. The Company presently
intends to have this system independently tested in the quarter ending December
31, 1998. If significant deficiencies are found, the Company may have to expend
significant resources to correct them, or in an extreme case, the Company may
have to purchase and implement a new system on an accelerated basis. Either of
those outcomes would be likely to have a material adverse affect on the
Company's operating results and financial position.
The Company has also initiated communications with third parties whose
computer systems' functionality could impact GRCI. These communications will
facilitate coordination of Y2K solutions and will permit GRCI to determine the
extent to which the Company may be vulnerable to failures of third parties to
address their own Y2K issues. However, as to the systems of the third parties
that are linked to GRCI, in particular those of the US Government, there can be
no guarantee that such systems that are not now Y2K compliant will be timely
converted to Y2K compliance.
The Company is also assessing any potential Y2K-related exposure it may
have with respect to software or hardware it has delivered to its customers.
The costs of the Company's Y2K compliance efforts are being funded with
cash flows from operations. As normal business costs, these costs are generally
reimbursible by the government under the Company's government contracts under
present regulations. In total, these costs are not expected to be substantially
different from the normal, recurring costs that are incurred for systems
development, implementation and maintenance. As a result, these costs are not
expected to have a material adverse effect on GRCI's overall results of
operations or cash flows.
Additionally, there can be no guarantee that third parties of business
importance to GRCI, in particular the US Government, will successfully and
timely reprogram or replace, and test, all of their own computer hardware,
software and process control systems. Because the majority of the Company's
business is contracted with the US Government, the failure of the US Government
to achieve Y2K compliance by the year 2000 would have a significant adverse
effect on GRCI's business, financial position, results of operations and cash
flows. Furthermore, if the Company's government customers delay other work in
<PAGE>
order to accelerate their own Y2K compliance efforts, it could have a
significant adverse effect on GRCI's business, financial position and results of
operations.
The Company does not yet have a comprehensive contingency plan with
respect to the Y2K problem, but intends to establish such a plan during calendar
1999 as part of its ongoing Y2K compliance effort.
The foregoing assessment of the impact of the Y2K problem on GRCI is
based on management's best estimates at the present time, and could change
substantially. The assessment is based upon numerous assumptions as to future
events. There can be no guarantee that these estimates will prove accurate, and
actual results could differ from those estimated if these assumptions prove
inaccurate.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
<TABLE>
<CAPTION>
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates, in particular, debt
obligations. GRCI does not trade in these instruments or use derivatives. The
table represents principal cash flows and related weighted average interest
rates by expected maturity dates.
Financial Instruments by Expected Maturity Date
(in thousands)
There- Fair
1999 2000 2001 2002 2003 after Total Value
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt:
Variable rate --- $23,256 --- --- --- --- $23,256 $23,256
Average interest
Rate 8.5% 8.5% --- --- --- --- --- ---
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
<S> <C> <C>
Independent Auditors' Report 19
Report of Management 20
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996 21
Consolidated Balance Sheets as of June 30, 1998 and 1997 22-23
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996 24-25
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1998, 1997 and 1996 26
Notes to Consolidated Financial Statements 27
</TABLE>
<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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998 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
July 28, 1998
<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/ Gary Denman /s/ Timothy C. Halsey
- ------------------------------------- ----------------------------------
Gary Denman Timothy C. Halsey
President and Chief Executive Officer Controller,
(Acting) Chief Financial Officer &
(Acting) Chief Accounting Officer
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
(in thousands, except for per share data)
<S> <C> <C> <C>
Revenues $130,927 $117,599 $117,016
Cost of services 110,477 96,123 99,344
Write down of deferred software
and other related costs --- --- 3,283
Indirect and other costs 15,048 16,854 14,571
---------- --------- ----------
Operating income (loss) 5,402 4,622 (182)
Interest expense, net (1,866) (1,343) (518)
----------- --------- ------------
Income (loss) from continuing operations
before income tax benefit 3,536 3,279 (700)
Income tax benefit 7,166 10,582 ---
----------- --------- -----------
Income (loss) from continuing operations 10,702 13,861 (700)
---------- ---------- ------------
Discontinued Operations:
Income (loss) from discontinued operations, 758 (25,220) (16,937)
net of tax of $471 in 1998
Loss on disposal of discontinued operations,
including provision of $2,775 for
operating losses during phase out --- (6,391) ---
--------- --------- -----------
Income (loss) from discontinued operations 758 (31,611) (16,937)
---------- --------- ----------
Net income (loss) $ 11,460 $ (17,750) $ (17,637)
========= ========= ==========
Earnings Per Share Amounts:
Basic income (loss) per share from
continuing operations $ 1.09 $ 1.48 $ (0.08)
Basic income (loss) per common share $ 1.17 $ (1.91) $ (1.92)
Weighted average common shares outstanding 9,838 9,338 9,172
Diluted income (loss) per share from
continuing operations $ 1.07 $ 1.45 $ (0.08)
Diluted net income (loss) per common share $ 1.14 $ (1.76) $ (1.92)
Weighted average common shares and
Equivalents 10,254 9,843 9,172
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- -------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,648 $ 5,756
Accounts receivable, net 28,702 25,087
Unbilled reimbursable costs and fees, net 4,189 4,076
Other receivables 893 1,090
Prepaid expenses and other current assets 486 576
Deferred income taxes 1,239 2,686
-------- ---------
Total current assets 39,157 39,271
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Land, buildings and leasehold improvements 5,121 4,874
Equipment, furniture and fixtures 15,517 15,093
Less - Accumulated depreciation and amortization (11,069) (9,414)
-------- ---------
Property and equipment, net 9,569 10,553
--------- --------
OTHER ASSETS:
Goodwill and other intangible assets, net 2,176 2,409
Software development costs, net 349 461
Deferred income taxes 16,678 8,896
Deposits and other 3,334 4,374
-------- ---------
Total other assets 22,537 16,140
-------- --------
TOTAL ASSETS $ 71,263 $ 65,964
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---------- -------
(in thousands, except share
and per share data)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 975 $ 1,679
Accounts payable 3,897 2,610
Accrued compensation and benefits 13,268 12,210
Accrued expenses and other current liabilities 1,944 2,313
Net liabilities related to discontinued operations 297 4,591
-------- ---------
Total current liabilities 20,381 23,403
-------- --------
LONG-TERM LIABILITIES:
Long-term debt 23,264 28,153
Other long-term liabilities 258 1,332
-------- ---------
Total long-term liabilities 23,522 29,485
-------- --------
COMMITMENTS AND CONTINGENCIES --- ---
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value -
300,000 shares authorized, none outstanding --- ---
Common stock, $.10 par value -
Authorized - 30,000,000 shares,
issued - 10,508,791 shares in 1998
and 9,849,000 shares in 1997 1,051 985
Paid-in capital 79,712 76,954
Accumulated deficit (49,558) (61,018)
-------- --------
31,205 16,921
Less: Treasury stock, at cost; 300,000 shares (3,845) (3,845)
-------- ---------
Total stockholders' equity 27,360 13,076
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 71,263 $ 65,964
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Income (loss) from continuing operations $ 10,702 $ 13,861 $ (700)
Reconciliation of income from continuing operations
Depreciation and amortization 3,177 3,330 3,509
Loss provision on current assets 1,052 1,067 956
Income tax benefit (6,806) (10,582) ---
Write-down of deferred software and related costs --- --- 3,283
Changes in assets and liabilities
Accounts receivable (4,780) (120) 5,414
Prepaid expenses and other current assets 287 (37) 239
Accounts payable 1,287 (2,197) (2,472)
Accrued expenses and other current liabilities 689 227 467
Income taxes payable --- 114 (176)
Other (44) (11) 129
---------- ------------ ------------
Net cash provided by operating activities 5,564 5,652 10,649
---------- --------- ----------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations 758 (31,611) (16,937)
Reconciliation of income from discontinued operations
Non-cash charges and changes in net assets/liabilities (4,223) 9,429 (4,767)
Proceeds from sale of discontinued operations 400 3,366 ---
Provision for loss on disposal of discontinued operations --- 6,391 ---
---------- ---------- --------------
Net cash used in discontinued operations (3,065) (12,425) (21,704)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (1,733) (3,468) (3,141)
Proceeds from sale of property and equipment 74 --- ---
Deferred software costs --- (97) (2,919)
Proceeds from notes receivable --- --- 1,440
Other (106) (247) (35)
---------- ----------- ------------
Net cash used in investing activities (1,765) (3,812) (4,655)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital lease obligations (5,552) (4,443) (148)
Bank borrowings 2,710 13,881 17,925
Proceeds from convertible debenture, warrants and other --- 4,000 ---
Deferred financing costs --- (207) ---
Issuance of common stock --- 320 ---
Taxes related to exercises of employee stock options --- --- (1,956)
---------- ---------- -----------
Net cash (used in) provided by financing activities (2,842) 13,551 15,821
---------- --------- ----------
Net (decrease) increase in cash and equivalents (2,108) 2,966 111
Cash and equivalents at beginning of year 5,756 2,790 2,679
---------- ----------- ----------
Cash and equivalents at end of year $ 3,648 $ 5,756 $ 2,790
========== ========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid for:
Interest $2,239 $2,055 $754
Taxes 28 80 84
Other non-cash financing activities:
Conversion of debenture to common stock 2,814 750 ---
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
------ ------ ------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balances as of July 1, 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)
Stock options exercised net of shares retained
for exercise price and taxes 25 2 9 --- ---
Compensation on officers' stock options 13 1 86 --- ---
Conversion of debenture to common stock 621 63 2,751
Discount on Employee Stock Purchase Plan --- --- (88) --- ---
Net income --- --- --- 11,460 ---
------- ------- ------- ------- --------
Balances as of June 30, 1998 10,511 $1,051 $79,712 $(49,558) $(3,845)
====== ====== ======= ========= ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
(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 - 98%, 94% and 91% of the Company's revenues were
derived from contracts with the U.S. Department of Defense (DoD) and 8%, 9% and
17% of revenues were derived from one contract for fiscal years 1998, 1997 and
1996, 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.
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 7 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. As of June 30, 1998 and 1997, accumulated
amortization of goodwill was $1,312,000 and $1,235,000, respectively, and of
other intangible assets was $1,392,000 and $1,272,000, 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 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
<PAGE>
capitalized, and, if required under SFAS 86, writes-down the carrying values to
net realizable value. Accumulated amortization as of June 30, 1998 and 1997, was
$336,000 and $130,000, 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 $3,367,000, $3,785,000 and $3,842,000 in 1998,
1997 and 1996, 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 $61,000, $53,000 and
$50,000 in 1998, 1997 and 1996, respectively. The present value of the projected
benefit obligation is approximately $156,000 and $145,000 at June 30, 1998 and
1997, respectively.
Income taxes - The Company accounts for income taxes under the asset
and liability approach which requires the recognition of deferred tax assets and
liabilities for the differences between the financial reporting and tax bases 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 - During 1998, the Company adopted Statement of
Financial Standards (SFAS) No. 128, Earnings Per Share and has computed basic
and diluted earnings per share based on the weighted average number of shares of
common stock and potential common stock outstanding during the period. Potential
common stock, for purposes of determining diluted earnings per share, includes,
where applicable, the effects of dilutive stock options, warrants, and
convertible securities, computed using the treasury
<PAGE>
stock method or the if-converted method. Comparative earnings per share data
have been restated for prior periods.
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 dates of
the financial statements and the reported amount of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
New Accounting Pronouncements - In 1999, the Company will be required
to adopt the provisions of Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. The Company has not completed
its evaluation of the impact that the adoption of such statements will have on
its financial statements.
<PAGE>
<TABLE>
<CAPTION>
(2) EARNINGS PER SHARE
The following table represents a reconciliation of the net income and
shares outstanding figures used in the basic and diluted earnings per share from
continuing operations computations.
1998 1997 1996
----------------------------- --------------------------- -----------------------------
$ Per $ Per Income $ Per
Income Shares Share Income Shares Share Loss Shares Share
----------------------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $ 10,702 9,838 $ 1.09 $13,861 9,338 $ 1.48 $ (700) 9,172 $ (0.08)
Income available to common
stockholders
Effect of dilutive securities
Stock options 146 176 ---
Debenture 184 270 425 329
--- ---
Diluted earnings per share
Income available to common
------------------------------ ---------------------------- -----------------------------
stockholders assuming conversion $ 10,886 10,254 $ 1.07 $14,286 9,843 $ 1.45 $ (700) 9,172 $ (0.08)
</TABLE>
<PAGE>
(3) DEBT
Long-term debt at June 30, consists of the following:
1998 1997
--------- -------
(in thousands)
Revolving credit agreement $ 18,506 $ 19,267
Term loans 4,750 4,900
Equipment financing 961 2,871
Convertible debenture --- 2,758
Other 22 36
--------- -----------
Total long-term debt $ 24,239 $ 29,832
Less current portion (975) (1,679)
---------- -----------
$ 23,264 $ 28,153
======== ========
The fair market values of the Company's debt instruments approximate
the carrying values.
Equipment Financing - In June 1996, the Company completed a $7.5
million financing of substantially all of its furniture and equipment. The loan
was originally to be amortized over a five year period at an interest rate of
9%, but with partial paydowns made from the proceeds from divestitures of
discontinues operations, the loan is now anticipated to be fully retired by the
end of fiscal 1999. As of June 30,1998, the outstanding balance on the equipment
financing lease was $961 thousand.
Revolving Credit Agreement and Term Loans - At June 30, 1998, the
Company had a revolving credit agreement with its bank that provides for secured
borrowings up to $22 million. The agreement extends to January 2000, 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, 2000. 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, 1998. 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.
At June 30, 1998, the Company was in compliance with its covenants under this
Agreement.
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"). By April 1998, the Debenture had been fully
converted into 804,322 shares.
<PAGE>
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"). The Debenture Warrant became exercisable on July 31, 1998. If the
Company sells substantially all of its assets or enters into a merger or
acquisition or other similar transaction, the Debenture Warrant is to be
repriced at the lesser of (i) $8.47 per share, or (ii) 80% of the Transaction
Value (as defined in the Debenture Warrant).
Aggregate annual maturities for long-term debt for the next five years
(unless extended) are as follows: 1999, $975 thousand; 2000, $23,264,000; and
nothing thereafter.
(4) INCOME TAXES
<TABLE>
<CAPTION>
The differences between the tax provision calculated at the statutory
federal income tax rate and the actual tax provision recorded for each year are
as follows:
1998 1997 1996
-------- -------- ------
(in thousands)
<S> <C> <C> <C>
Income tax (benefit) at statutory federal rate $ 1,619 $ 1,115 $ (238)
State income taxes, net of federal benefit 225 151 (28)
Change in valuation reserve (8,349) (11,848) 230
Other (190) --- 36
-------- --------- --------
Income tax benefit $ (6,695) $(10,582) $ ---
========= ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The primary components of the Company's net deferred tax asset are as
follows:
As of June 30,
1998 1997
-------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Reserves and other nondeductible accruals $ 2,167 $ 4,266
Compensation not currently deductible 2,094 2,207
Net operating losses 26,257 26,195
AMT and general business credits 816 800
Other 9 ---
Valuation reserve (9,150) (17,500)
--------- --------
Total deferred tax assets 22,193 15,968
--------- --------
Deferred tax liabilities:
Reimbursable costs and fees (2,945) (3,555)
Prepaid expenses and rent (342) (232)
Depreciation (tax over book) (349) (410)
Internally developed software (143) (189)
Other (497) ---
--------- ---------
Total deferred tax liabilities (4,276) (4,386)
-------- ---------
Net deferred tax asset $ 17,917 $ 11,582
======== ========
</TABLE>
At June 30, 1998, the Company had net operating loss carryforwards of
approximately $64 million available to reduce future federal tax liabilities, of
which approximately $10 million expire in 1999, $15 million expire between 2000
and 2010, $27 million expire in 2011, and $12 million expire in 2012.
Realization of the net deferred tax asset of $17.9 million 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 net 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 periods are reduced.
<PAGE>
(5) COMMITMENTS AND CONTINGENCIES
<TABLE>
<CAPTION>
Commitments - The Company leases all of its facilities and rents
certain equipment under operating lease agreements, some with inflation
escalator clauses. The minimum annual rentals due under non-cancelable operating
leases during each of the next five years and in total thereafter, are presented
in the table below.
Operating Sublease
Leases Rental Income
(in thousands)
<S> <C> <C>
1999 $ 6,538 $ 1,166
2000 5,737 1,155
2001 5,086 1,014
2002 4,806 462
2003 4,656 142
Thereafter 28,244 ---
-------- ------------
$55,067 $ 3,939
======= ========
</TABLE>
Rent expense under operating leases was $ 7,429,000, $7,367,000 and
$6,643,000, net of sublease income of $1,095,000, $555,000 and $477,000, in
1998, 1997 and 1996, respectively.
As of June 30, 1998, the Company had employment agreements with 16
employees providing for severance payments upon employment termination after a
change in control. The maximum amount payable under these arrangements was
approximately $3,300,000.
(6) ACCOUNTS RECEIVABLE AND UNBILLED REIMBURSABLE COSTS AND FEES
<TABLE>
<CAPTION>
A summary of U.S. government and non-U.S. government accounts
receivable and unbilled reimbursable costs and fees is as follows:
1998 1997
---------- --------
(in thousands)
<S> <C> <C>
Accounts receivable, net of reserves of
$41 in 1998 and 1997 -
U.S. government $ 27,616 $ 23,420
Non-U.S. government 1,086 1,667
-------- ---------
$ 28,702 $ 25,087
======== ========
Unbilled reimbursable costs and fees,
net of reserves of $4,743 in 1998
and $4,594 in 1997 -
U.S. government $ 3,424 $ 3,646
Non-U.S. government 765 430
-------- ---------
$ 4,189 $ 4,076
========= =========
</TABLE>
<PAGE>
Invoices released in July that relate to June activity were $12,668,000
and $10,736,000 for 1998 and 1997, respectively, and are reflected in accounts
receivable in the accompanying financial statements.
<TABLE>
<CAPTION>
The components of unbilled reimbursable costs and fees are as follows:
1998 1997
-------- ------
(in thousands)
<S> <C> <C>
Retainages billable upon completion of contract $ 2,561 $ 2,301
Unbilled direct costs, fee and indirect costs incurred
in excess of provisional billing rates 836 501
Costs incurred in excess of contractual authorization,
billable upon execution of a contract or contractual
amendment to increase funding 792 1,274
-------- --------
$ 4,189 $ 4,076
======= ========
</TABLE>
At June 30, 1998, unbilled reimbursable costs and fees expected to be
collected after one year were approximately $2,050,000.
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
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 and term loan 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.
<PAGE>
(8) STOCK-BASED COMPENSATION PLANS
At June 30, 1998, 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.
Under the 1985 Employee Stock Option Plan ("1985 Plan"), no further
options may be granted, but 80,470 options remain outstanding as of June 30,
1998.
Under the 1994 Employee Stock Option Plan ("1994 Plan"), a total of
20,720 shares have been issued (17,222 of them to officers), and 795,317 options
are outstanding, of which 541,854 are held by officers.
Under the 1996 Employee Stock Option Plan ("1996 Employee Plan"), no
shares have been issued, 202,813 options are outstanding. Under the 1996
Officers Stock Option Plan ("1996 Officers Plan"), no shares have been issued,
302,250 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 to 24 months. Options have a 10-year term and are issued at the fair market
value on the date of grant, and therefore, under the intrinsic value method, no
compensation is recorded in the Statement of Operations.
During the second quarter of FY98, employees other than the 7
highest-paid officers were permitted to reprice their options at the then
current fair value in exchange for a reduced number of options.
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, 1998, options for 59,542 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, 1998, June 30, 1997
and June 30, 1996 was approximately $78 thousand, $112 thousand and $118
thousand, respectively.
Under the Company's Cash Compensation Replacement Plan, officers may
elect to forego cash compensation (up to 25% of salary and up to 100% of bonus)
to purchase stock and/or 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, 1998,
options for 46,850 shares are
<PAGE>
exercisable. Compensation cost recognized under the Cash Compensation
Replacement Plan for the years ended June 30,1998, June 30, 1997 and June 30,
1996 equaled approximately $37 thousand, $103 thousand and $359 thousand,
respectively.
<TABLE>
<CAPTION>
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.):
1998 1997
------------------------ ---------------------
As Pro As Pro
Reported Forma Reported Forma
--------- ----- -------- -----
<S> <C> <C> <C> <C>
Net income (loss) (in thousands) $11,460 $ 9,422 $(17,750) $(19,562)
Earnings Per Share Amounts (Diluted)
- -----------------------------------
Net income (loss) $ 1.14 $ .94 $ (1.76) $ (1.94)
</TABLE>
<TABLE>
<CAPTION>
A summary of the status of the Company's stock options as of June 30,
1998, 1997 and 1996 and changes during those years is presented below (shares in
thousands):
1985, 1994 and 1996 Plans
1998 1997 1996
--------------------------- -------------------------- -----------------------
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 1,133,540 $17.42 855,661 $18.58 829,745 $ 9.04
Granted 814,349 $6.77 518,771 $13.59 415,011 $25.20
Exercised (82,665) $ 5.71 (83,655) $ 6.02 (373,595) $ 4.89
Canceled (484,375) $18.85 (157,237) $17.15 (15,500) $15.35
--------- ---------- ---------
Outstanding @
end of year 1,380,849 $11.32 1,133,540 $17.42 855,661 $18.58
========= ========= ========
Options exercisable
at year end 606,244 $12.18 292,165 $16.20 166,286 $18.90
========== ========= ========
Options available
for future grant 137,473 172,053 95,337
========== ========== =========
Weighted Average
fair value of options
granted during the
year $ 3.40 $ 6.66 $ 9.16
========== ============ =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Directors Fee Replacement Plan & Cash Compensation Replacement Plan
1998 1997 1996
--------------------------- -------------------------- ----------------------
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 89,810 $3.20 59,924 $3.59 41,503 $1.96
Granted 22,881 $1.68 29,906 $2.40 22,982 $6.92
Exercised (6,299) $4.00 (20) $9.43 (4,561) $5.53
Canceled --- --- --- --- --- ---
---------- ---------- ----------
Outstanding @
end of year 106,392 $2.82 89,810 $3.20 59,924 $3.59
========= ========= =========
Options exercisable
at year end 100,050 $2.60 82,628 $3.05 54,117 $3.38
========= ========= =========
Options available
for future grant 389,499 419,503 459,858
========= ========= ========
Weighted Average fair
value of options
granted during the
year $ 5.57 $ 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, 1998, 1,352 and 10,560 of the outstanding shares expire in FY 1999 and
FY 2000, respectively. As of June 30, 1998, 1,103 and 9,813 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:
1998 1997 1996
------ ------ ------
(a) Dividends --- --- ---
(b) Expected volatility 50% 50% 44%
(c) Risk-free interest rate 5.5% 6.5% 6.5%
(d) Expected life in years 5 5 5
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options
outstanding at June 30, 1998 (shares in thousands):
1985, 1994 and 1996 Plans
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 - $ 9.38 915,349 8.5 $ 6.44 339,119 $ 5.66
$ 15.44 - $37.69 465,500 7.5 $20.91 267,125 $20.45
--------- --- ------ ------- ------
$ 4.13 - $37.69 1,380,849 8.2 $11.32 606,244 $12.18
</TABLE>
<TABLE>
<CAPTION>
Directors Fee Replacement Plan & Cash Compensation Replacement Plan
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted
Range of Average Average
Exercise Number Exercise Number Exercise
Prices Outstanding Price Exercisable Price
- ------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C>
$. 10 - $ 3.77 83,511 $1.75 79,563 $1.74
$ 5.07 - $ 9.43 22,881 $6.73 20,487 $6.78
------- ----- -------- -----
$ .10 - $ 9.43 106,392 $2.82 100,050 $2.77
</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 58,230, 65,871 and 25,304 shares of common stock to its
employees during the years ended June 30, 1998, 1997 and 1996, respectively. The
weighted average value of those purchase rights granted in 1998 and 1997 was
approximately $2.40 and $1.89 per share.
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) 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 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
<PAGE>
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 rights will terminate. The rights expire on December 31, 2005.
Structured Equity Line Financing - The Company is a party to a
Structured Equity Line Flexible Financing Agreement ("Equity Line Agreement")
whereby 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 over a 3 year
period beginning October 1, 1998. 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 Line Warrant became exercisable on July
31, 1998. If the Company sells substantially all of its assets or enters into a
merger or acquisition or other similar transaction, the Equity Line Warrant will
be 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 underlying shares, (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.
<PAGE>
(10) DISCONTINUED OPERATIONS
During the quarter ended March 31, 1997, the Company adopted a plan to
dispose of its Telecommunications and Advanced Products Divisions. As of January
8, 1998, all business units within those divisions had been sold. Consequently,
the Company has reported its results of operations for the Telecommunications
and Advanced Products Divisions as discontinued operations.
On April 30, 1997, the Company sold the assets and liabilities of its
GRC Instruments/Dynatup business unit of its discontinued Advanced Products
Division for $2.0 million in cash.
On June 5, 1997, the Company sold the assets and liabilities of its
Vindicator business unit of its discontinued Advanced Products Division for
approximately $700 thousand, with initial payment of $250 thousand. Subsequent
installments of approximately $130 thousand have been received. The remainder of
the purchase price, $320 thousand, is due on December 31, 1998, and is reflected
within net liabilities of discontinued operations.
On June 27, 1997, the Company sold the assets and liabilities of its
OSU business unit of its discontinued Telecommunications Division for an initial
payment of $1.5 million and royalties on sales of the OSU unit or derivatives
over the next 10 years.
On December 19, 1997, the Company sold the assets of its Commercial
Information Solutions ("CIS") component of its discontinued Advanced Products
Division in exchange for royalties on future sales of Flow Gemini and derivative
products and related services.
On January 8, 1998, the Company sold the assets of its NetworkVUE
business unit of its discontinued Telecommunications Division in exchange for
royalties on future sales of NetworkVUE, NetSolve and derivative products and
related services.
<PAGE>
<TABLE>
<CAPTION>
Summarized balance sheet data related to the discontinued operations is
as follows:
June 30, June 30,
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Net assets to be disposed of:
Current assets $ 40 $ 417
Property, plant & equipment, net 391 1,035
Other 10 44
--------- --------
441 1,496
Liabilities 96 ---
--------- --------
Net assets to be disposed of 345 874
Proceeds receivable from sale of divisions 400 400
Provision for losses (1,042) (3,883)
QSI obligation --- (1,982)
--------- --------
Net liabilities related to discontinued
operations $ (297) $(4,591)
======== =======
</TABLE>
Discontinued operations reflect management's 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
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).
<PAGE>
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.
<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 17, 1998 By: /s/ Gary Denman
------------------ ----------------------------
Gary Denman
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy C. Halsey 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 17, 1998 By: /s/ Gary Denman
----------------- --------------------------
Gary Denman
President and Chief Executive
Officer
Date: September 17, 1998 By: /s/ Timothy C. Halsey
------------------ --------------------------
Timothy C. Halsey
Controller,
(Acting) Chief Financial
Officer & (Acting) Chief
Accounting Officer
<PAGE>
Date: September 17, 1998 By: /s/ Joseph R. Wright, Jr.
------------------ -------------------------------
Joseph R. Wright, Jr., Chairman
of the Board of Directors
Date: September 17, 1998 By: /s/ Peter A. Cohen
------------------ -------------------------------
Peter A. Cohen, Vice Chairman
of the Board of Directors
Date: September 17, 1998 By: /s/ H. Furlong Baldwin
------------------ ------------------------------
H. Furlong Baldwin, Director
Date: September 17, 1998 By: /s/ Frank J.A. Cilluffo
------------------ ------------------------------
Frank J.A. Cilluffo, Director
Date: September 17, 1998 By: /s/ Leslie B. Disharoon
------------------ ------------------------------
Leslie B. Disharoon, Director
Date: September 17, 1998 By: /s/ Charles H.P. Duell
------------------ ------------------------------
Charles H.P. Duell, Director
Date: September 17, 1998 By: /s/ Edward C. Meyer
------------------ ------------------------------
Edward C. Meyer, Director
Date: September 17, 1998 By: /s/ George R. Packard
------------------ ------------------------------
George R. Packard, Director
Date: September 17, 1998 By: /s/ Herbert Rabin
------------------ ------------------------------
Herbert Rabin, Director
Date: September 17, 1998 By: /s/ Jim Roth
------------------ ------------------------------
Jim Roth, Director
Date: September 17, 1998 By: /s/ E. Kirby Warren
------------------ ------------------------------
E. Kirby Warren, Director
<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, 33-87982 and
333-38445 of GRC International, Inc. on Form S-8 of our report dated July 28,
1998, appearing in this Annual Report on Form 10-K of GRC International, Inc.
for the year ended June 30, 1998.
DELOITTE & TOUCHE LLP
McLean, Virginia
September 18, 1998
<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, 1998
Reserves for uncollectible receivables -
Deducted from accounts receivable $ 41 $ --- $ --- $ --- $ 41
Deducted from unbilled reimbursable
costs and fees 4,594 925 127 (904) 4,742
-------- -------- ------- ------- --------
$ 4,635 $ 925 $ 127 $ (904) $ 4,783
========= ======== ======= ======= ========
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
======= ======== ====== ======= =======
(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.
</TABLE>
<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 (incorporated by reference to Exhibit
10.2 to the 1997 Form 10-K)
10.3* 1996 Officers Stock Option Plan -----
10.4* 1998 Option Plan -----
10.5* Cash Compensation Replacement Plan (incorporated by reference to
Exhibit 10.4 to the 1997 Form 10-K)
10.6* Incentive Compensation Plan (incorporated by reference to Exhibit
10.7 to the 1995 Form 10-K)
10.7* Directors Fee Replacement Plan (incorporated by reference to
Exhibit 10.6 to the 1997 Form 10-K)
10.8* Directors Phantom Stock Plan (incorporated by reference to
Exhibit 10.7 to the 1996 Form 10-K)
10.9* Directors Retirement Plan (incorporated by reference to Exhibit
10.8 to the 1997 Form 10-K)
10.10 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)
10.11 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)
<PAGE>
10.12 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)
10.13 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)
10.14 Third Allonge to Secured Note (Commercial) of GRC International,
Inc. to Mercantile-Safe Deposit & Trust Company in the Principal
Amounts of $2,200,000 dated February 12, 1996; $400,000 dated
March 8, 1996; and $2,600,000 dated June 7, 1996 -----
10.15 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)
10.16 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)
10.17 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)
10.18 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)
10.19 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)
10.20* Employment Agreement between the Company and Jim Roth dated as of
July 1, 1995 (incorporated by reference to Exhibit 10.16 to the
1996 Form 10-K)
10.21* Amendment Number One to Employment Agreement between the Company
and Jim Roth dated as of June 30, 1998 -----
10.22* 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)
<PAGE>
10.23* Amendment to Deed of Trust Note dated as of March 26, 1998 -----
10.24* Independent Contractor Agreement dated as of July 1, 1998 between
the Company and Jim Roth -----
10.25* Employment Agreement between the Company and Gary L. Denman -----
10.26* Form of Employment Agreement for Thomas E. McCabe and Ronald B.
Alexander -----
10.27* Form of Employment Agreement for James L. Selsor and Michael G.
Stolarik -----
10.28 Building Lease between the Company and Bermant Development
Company (incorporated by reference to Exhibit 10.21 to the 1995
Form 10-K)
10.29 First and Second Amendments to Building Lease between the Company
and Bermant Development Company (incorporated by reference to
Exhibit 10.23 to the 1997 Form 10-K)
10.30 Convertible Securities Subscription Agreement dated as of January
21, 1997 between the Company and Halifax Fund, L.P. ("Halifax")
(incorporated by reference to Exhibit 10.2 to the Company's Form
10-Q for the quarter ended December 31, 1996)
10.31 $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)
10.32 320,000 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)
10.33 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)
10.34 Structured Equity Line Flexible Financing Agreement ("Equity Line
Agreement") dated as of January 21, 1997 (amended and restated as
of August 26, 1998) between the Company and Cripple Creek
Securities, LLC ("Cripple Creek")
<PAGE>
10.35 125,000 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)
10.36 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 43 of Form
10-K)
24 Powers of Attorney (included as a part of signature pages to the
Form 10-K)
27 Financial Data Schedule -----
* Indicates management contract or compensatory plan.
</TABLE>
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.
<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.
<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.
<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
<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,
<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.
<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 committee. 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.
<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.
<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
<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
<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
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.
<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") and the present Vice Chairman of the Board and any
future Vice Chairman of the Board ("Vice 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
<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.
<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
<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.
7.1.1. 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 or Vice 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.
<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
<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
<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.
<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
GRC INTERNATIONAL, INC.
1998 OPTION PLAN
1. PURPOSE
The purpose of the 1998 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.
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 July 23, 1998.
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.
<PAGE>
2.11. "Grant Date" means the date as of which an Option is granted by
the Committee pursuant to the Plan.
2.12. "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. The term "Key Employee" shall also include officers (as defined in
the bylaws of the applicable corporation), including the present Chairman of the
Board or any future Chairman of the Board ("Chairman") and the present Vice
Chairman of the Board and any future Vice Chairman of the Board ("Vice
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 Key Employee who is granted an Option
pursuant to the Plan.
2.18. "Plan" means the GRC International, Inc. 1998 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 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 500,000 shares of
Stock, unless such number of shares is adjusted as provided in Section 10. 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 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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
7.1.1. 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 or Vice 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.
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.
<PAGE>
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 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.
<PAGE>
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 (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
<PAGE>
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.
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
<PAGE>
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.
THIRD ALLONGE
TO
SECURED NOTE (COMMERCIAL) OF
GRC INTERNATIONAL, INC.
TO
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
IN THE PRINCIPAL AMOUNT OF
TWO MILLION TWO HUNDRED THOUSAND DOLLARS ($2,200.000)
DATED February 12, 1996
WITNESSETH:
By consent of the Maker, as evidenced by its execution of this Third Allonge,
the Secured Note (Commercial) identified in the caption above (the "Secured
Note") is hereby amended as follows (unless otherwise defined or the context
otherwise requires, the defined terms used herein shall have the same meanings
assigned to them in the Secured Note):
1. The reference to "September 1, 1997" in the first sentence of the
Secured Note, revised in the First Allonge dated September 24,
1996 to "September 1, 1998", and in the Second Allonge to
"September 1, 1999", shall be changed to September 1, 2000.
2. All other terms and conditions of the Secured Note shall remain
the same. This Third Allonge shall not be deemed a novation nor
shall it limit, reduce or otherwise affect the Maker's
obligations set forth in the Secured Note. This Third Allonge is
made in addition to, and not in substitution of, the Maker's
original obligations as described in the Secured Note. This Third
Allonge shall be affixed to the original Secured Note and shall
be considered to be a part thereof.
This Third Allonge, executed under seal in Baltimore, Maryland and intended to
be a sealed instrument, is dated August 4, 1998 and is effective as of September
1, 1998.
ATTEST/WITNESS: GRC INTERNATIONAL, INC.
/s/ Michele L. Zeck By: /s/ Ronald B. Alexander
- ------------------- ---------------------------------------
Name: Ronald B. Alexander
Title: Treasurer and Chief Financial Officer
<PAGE>
THIRD ALLONGE
TO
SECURED NOTE (COMMERCIAL) OF
GRC INTERNATIONAL, INC.
TO
MERCANTILE-SAFE DEPOSIT & TRUST COWANY
IN THE PRINCIPAL AMOUNT OF
FOUR HUNDRED THOUSAND DOLLARS ($400,000)
DATED March 8, 1996
WITNESSETH:
By consent of the Maker, as evidenced by its execution of this Third Allonge,
the Secured Note (Commercial) identified in the caption above (the "Secured
Note") is hereby amended as follows (unless otherwise defined or the context
otherwise requires, the defined terms used herein shall have the same meanings
assigned to them in the Secured Note):
1. The reference to "September 1, 1997" in the first se ntence of
the Secured Note, revised in the First Allonge dated September
24, 1996 to "September 1, 1998", and in the Second Allonge to
"September 1, 1999", shall be changed to September 1, 2000.
2. The principal amount of the Note shall be decreased to $150,000.
3. All other terms and conditions of the Secured Note shall remain
the same. This Third Allonge shall not be deemed a novation nor
shall it limit, reduce or otherwise affect the Maker's
obligations set forth in the Secured Note. This Third Allonge is
made in addition to, and not in substitution of, the Maker's
original obligations as described in the Secured Note. This Third
Allonge shall be affixed to the original Secured Note and shall
be considered to be a part thereof.
This Third Allonge, executed under seal in Baltimore, Maryland and intended to
be a sealed instrument, is dated August 4, 1998 and is effective as of September
1, 1998.
ATTEST/WITNESS: GRC INTERNATIONAL, INC.
/s/ Michele L. Zeck By: /s/ Ronald B. Alexander
- ------------------- -------------------------------------
Name: Ronald B. Alexander
Title: Treasurer and Chief Financial Officer
<PAGE>
THIRD ALLONGE
TO
SECURED NOTE (COMMERCIAL) OF
GRC INTERNATIONAL, INC.
TO
NIERCANTILE-SAFE DEPOSIT & TRUST CONVANY
IN THE PRINCIPAL AMOUNT OF
TWO MILLION SIX HUNDRED THOUSAND DOLLARS ($2,600,000)
DATED June 7, 1996
WITNESSETH:
By consent of the Maker, as evidenced by its execution of this Third Allonge,
the Secured Note (Commercial) identified in the caption above (the "Secured
Note") is hereby amended as follows (unless otherwise defined or the context
otherwise requires, the defined terms used herein shall have the same meanings
assigned to them in the Secured Note):
1. The reference to "September 1, 1997" in the first sentence of the
Secured Note, revised in the First Allonge dated September 24,
1996 to "September 1, 1998", and in the Second Allonge to
"September 1, 1999", shall be changed to September 1, 2000.
2. All other terms and conditions of the Secured Note shall remain
the same. This Third Allonge shall not be deemed a novation nor
shall it limit, reduce or otherwise affect the Maker's
obligations set forth in the Secured Note. This Third Allonge is
made in addition to, and not in substitution of, the Maker's
original obligations as described in the Secured Note. This Third
Allonge shall be affixed to the original Secured Note and shall
be considered to be a part thereof.
This Third Allonge, executed under seal in Baltimore, Maryland and intended to
be a sealed instrument, is dated August 4, 1998 and is effective as of September
1, 1998.
ATTEST/WITNESS: GRC INTERNATIONAL, INC.
/s/ Michele L. Zeck By: /s/ Ronald B. Alexander
- ------------------- --------------------------------------
Name: Ronald B. Alexander
Title: Treasurer and Chief Financial Officer
AMENDMENT NUMBER 1 TO EMPLOYMENT AGREEMENT
This AMENDMENT NUMBER 1 ("Amendment") TO EMPLOYMENT AGREEMENT is made and
entered into, in duplicate, as of the date hereinafter set forth, at Vienna,
Virginia, by and between the undersigned employee ("Employee"), and GRC
International, Inc., a Delaware corporation ("Company"). In consideration of the
mutual premises, promises, covenants, and agreements herein contained, Employee
and Company hereby amend the Employment Agreement between them dated as of July
1, 1995 ("Employment Agreement") as follows:
1. Lifetime Medical and Dental Coverage for Employee and Spouse.
(a) Section 5 of the Employment Agreement provides certain insurance benefits
for Employee and his spouse. Employee and the Company hereby amend said Section
5 to provide that the medical and dental insurance coverage provided shall also
include the so-called "Vision" coverage provided by the Company, under the same
terms and conditions as the medical and dental insurance are required to be
provided pursuant to the Employment Agreement.
(b) Section 5 also provides that, to the fullest extent permitted by law, the
insurance coverage provided to Employee and his spouse is supplemental to
Medicare or any other government or other arrangement which might be in force
now or at a later date. Employee and the Company hereby amend said Section 5 to
provide that the insurance provided to Employee and his spouse, while
supplemental to Medicare, is not capped by limitations corresponding to those of
Medicare. In addition, Employee agrees that Employee and his spouse shall enroll
in Medicare as soon as they are eligible.
Nothing else is hereby amended.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of June
30, 1998.
ATTEST: GRC INTERNATIONAL, INC.
By:
- ---------------------------------- -----------------------
Thomas E. McCabe Joseph R. Wright, Jr.
Sr. Vice President, General Counsel & Sec'y Chairman of the Board
WITNESS EMPLOYEE
- --------------------------------- ---------------------------
James Roth
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
- ---------------------------------
Leslie B. Disharoon
Chairman, Compensation Committee
AMENDMENT TO DEED OF TRUST NOTE
This AMENDMENT TO DEED OF TRUST NOTE ("Amendment") is dated as of March
26, 1998 by and between James Roth, an individual ("Mr. Roth"), and GRC
International, Inc., a Delaware corporation ("GRC").
WHEREAS, James and Marilyn R. Roth (collectively, "Maker") executed a
Deed of Trust Note dated as of July 9, 1992 in the principal amount of $230,000
("Note") to the order of GRC International, Inc., a Delaware corporation, or its
successors or assigns ("GRC") or any subsequent holder of the Note ("Payee").
NOW THEREFORE IT IS HEREBY AGREED, that on July 1, 1998, GRC will
forgive one half of the outstanding principal amount of the Note, subject to Mr.
Roth's continued compliance with his various agreements through that date. The
remaining one half of the Note will then cease to bear interest, and will be
forgiven on July 1, 1999, subject to GRC's approval based on Mr. Roth's
compliance with his various agreements through that date.
Nothing else is hereby amended.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first set forth above.
ATTEST: GRC INTERNATIONAL, INC.
By:
- --------------------------------- ----------------------
Thomas E. McCabe Joseph R. Wright, Jr.
Sr. Vice President, General Counsel & Sec'y Chairman of the Board
WITNESS EMPLOYEE
- -------------------------------- ---------------------------
James Roth
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
- --------------------------------
Leslie B. Disharoon
Chairman, Compensation Committee
INDEPENDENT CONTRACTOR AGREEMENT
This is a CONTRACT by and between GRC International, Inc., a Delaware
Corporation, hereinafter referred to as "GRCI", and Jim Roth, hereinafter
referred to as the "Independent Contractor".
IN CONSIDERATION of the promises and mutual covenants and agreements contained
herein, the parties agree as follows:
1. Scope of Work. Subject to the terms and conditions of this Agreement, the
"Independent Contractor" will assist the Company in the areas of business
development and growth strategy, and additional work as may be assigned by the
CEO of "GRCI".
2. Term. This Agreement shall be effective July 1, 1998, and will continue until
November 5, 1998. "GRCI" may immediately terminate in the event of the
"Independent Contractor's" breach of this Agreement.
3. Consideration and Payment.
A. As consideration for services and for assigning rights in inventions,
designs, patents, trademarks and copyrights, as hereinafter provided,
"GRCI" will compensate the 'Independent Contractor" at the rate of
$1,600 per day, with a guaranteed minimum of 10 days per month up to a
maximum of 15 days per month. The daily rate of $1,600 anticipates 8
hours of work per day. "GRCI" will reimburse the Independent
Contractor for such travel and other expenses as have been authorized.
Reimbursement for local travel (local travel is considered to be a 50
mile radius of the "Independent Contractor's" business location) is
not authorized.
B. Payment will be made within thirty (30) days of receipt of a fully
documented and acceptable invoice for work authorized in writing by
"GRCI".
4. Expenditure Limitation. The total authorized expenditure limitation hereunder
shall not exceed $125,000.
5. Direction. The Independent Contractor shall be responsible for his/her
performance. Direction and clarification regarding the scope of work shall be
provided by Gary L. Denman, President & CEO, GRCI
<PAGE>
6. Certifications. The Independent Contractor, by signing this Agreement,
certifies that:
A. the rate of compensation specified herein is that rate charged on a
most-favored customer basis;
B. if currently or formerly employed by the Federal Government, the
Independent Contractor has provided to the Corporation all information
necessary to clarify any potential conflict of interest and that the
Independent Contractor will abide by the attached restrictions;
C. no promise of compensation has been made contingent upon the
acquisition of any particular contract, explicitly or implicitly, to
be secured in any manner for the Corporation;
D. he/she is familiar with, and will comply with, the provisions of
Subsection 27(a) of the Office of Federal Procurement Policy Act (41
USC 423), known as the Procurement Integrity Act, as amended and
implemented in the FAR and agency supplements and will report
immediately to the Corporation's Project Director or the Contracts
Department any information concerning a violation or possible
violation of Subsections 27(a), (b), (d) or (f) of the Act,
E. he/she has read and understands GRCI's Corporate Standard of Conduct
and has completed and returned the Ethics Questionnaire, and
F. he/she qualifies as an independent contractor under the US Internal
Revenue Code.
7. General Conditions. The General Conditions set forth on the Attachment,
entitled "General Conditions for Independent Contractors," are hereby
incorporated by reference.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed.
Accepted for: Accepted for:
Jim Roth GRC International, Inc.
2140 Owls Cove Lane 1900 Gallows Road
Reston, VA 22981 Vienna, Virginia 22182
/s/ Jim Roth 7-1-98 By: /s/ Vivian L. Scheithauer 7-1-98
- --------------------------------- ---------------------------------
Independent Contractor's Signature/Date Signature/Date
SSN ###-##-#### Title: Sr. Contracts Administrator
- --------------------------------- ------------------------------
Independent Contractor's SSN/FEIN Charge Number:
-----------------------
<PAGE>
GENERAL CONDITIONS FOR INDEPENDENT CONTRACTORS
1. Applicable Law and Arbitration. Any controversy or claim arising out of, or
relating to, this Agreement, shall be governed by the laws of the Commonwealth
of Virginia, except its choice of law rules, and shall be deemed to be executed
in Virginia. Pending the resolution of any dispute, the Independent Contractor
shall proceed as directed by the Corporation in writing. Any controversy or
claim arising out of or relating to this Agreement, or the breach thereof, shall
be settled by arbitration before one (1) arbitrator in Vienna, Virginia in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the arbitral award may be entered in any court
having jurisdiction thereof.
2. Assignment. This Agreement is for personal services and shall not be
transferred or assigned by the Independent Contractor without prior written
consent of the Corporation.
3. Confidential Matters.
a. Nondisclosure of Information Independent Contractor understands that in
the course of his/her relationship with Company, Independent Contractor has been
and will be making use of, acquiring or adding to proprietary information of GRC
International, Inc.. Independent Contractor also understands that Company may
have received information and materials from third parties in confidence.
Notwithstanding any termination of this Agreement, the Independent Contractor
shall not at any time publish, reveal or disclose any information, data, or the
like, resulting from performance of this Agreement, or received or reviewed by
the Independent Contractor, or disclosed to the Independent Contractor,
including, without limitation, any information relating to the Corporation's
business, customers, contracts, bids, proposals, trade secrets, or know-how,
without having obtained prior written consent of the Corporation. Upon
termination or expiration of this Agreement, the Independent Contractor shall
deliver all records, data, information, and other documents and all copies to
the Corporation and such shall remain the property of the Corporation.
b. Proprietary Information All of the following information and materials,
whether oral or written which are broadly defined are "Proprietary Information"
belongs to Company, and Independent Contractor shall keep this information and
material strictly confidential, even if not physically marked as such:
(i) Application, operating system, communication and other computer
software, and all versions and options of same and all future products
developed or derived therefrom;
(ii) With respect to the software described in paragraph 2(i) above, all
source and object codes, flowcharts, algorithms, coding sheets, compilers,
assemblers, design concepts routines and subroutines, documents and manuals.
(iii) Production processes, marketing techniques, mailing lists, purchasing
information, price lists, pricing policies, quoting procedures, financial
information, customer and prospect names and requirements, customer data,
customer site information and other materials or information relating to the
manner in which Company does business;
(iv) Discoveries, concepts and ideas, whether or not patentable or
protectable by copyright, including, without limitation, the nature and
results of research and development activities, technical information on
product or program performance and reliability, processes, formulas,
techniques, trade secrets, "know-how", source codes, object codes, designs,
drawings and specifications;
<PAGE>
(v) Any other materials, information or communications related to the
business or activities of GRC International, Inc. which are not generally
known to others engaged in similar businesses or activities;
(vi) All ideas which are derived from or related to access to or knowledge
of any of the above enumerated materials and information; and
(vii) Any information not in the public domain regarding the financial
affairs of GRC International, Inc., its salary structure, its relationship
with its customers and/or employees and such other information not in the
public domain as may be helpful to its competitors or embarrassing to GRC
International, Inc., its customers or employees.
c. Title. All Proprietary Information shall remain the exclusive property of
GRC International, Inc.. Proprietary Information shall be used solely for the
purpose of performing Independent Contractor's responsibilities assigned by GRC
International, Inc..
d. Return of GRC International, Inc. Property. At GRC International, Inc.'s
request, or upon termination of the consulting relationship with GRC
International, Inc., Independent Contractor agrees to turn over to GRC
International, Inc. all notes, data, tapes, lists, reference materials,
sketches, drawings, memoranda, records, Proprietary Information and other
documents which are in Independent Contractor's possession or control belonging
to GRC International, Inc. or relating to its business.
e. Remedies. Independent Contractor understands and agrees that GRC
International, Inc. will suffer irreparable harm in the event of a breach of any
obligations under this Agreement and that monetary damages will be inadequate to
compensate GRC International, Inc. for such breach. Accordingly, Independent
Contractor agrees that, in the event of a breach or threatened breach of any of
the provisions of this Agreement, GRC International, Inc. in addition to and not
in limitation of any other rights, remedies or damages available to GRC
International, Inc. at law or in equity, shall be entitled to a permanent
injunction in order to prevent or to restrain any such breach by Independent
Contractor, or by Independent Contractor's partners, agents, representatives,
servants, employers, employees and/or any and all persons directly or indirectly
acting for or with Independent Contractor.
f. Accounting. Contractor covenants and agrees that, if any covenants or
agreements under this Agreement are violated, GRC International, Inc. shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration or benefits which directly or indirectly have realized
and/or may realize as a result of, growing out of or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which GRC International, Inc.
is or may be entitled at law, in equity or under this Agreement.
<PAGE>
g. Reasonableness of Restrictions. Independent Contractor has carefully read
and considered the provisions of Paragraphs 3a. through 3g. and, having done so,
agrees that the restrictions set forth therein are fair and reasonable and are
reasonably required for the protection of the interests of GRC International,
Inc., its officers, directors, stockholders, employees and customers.
4. General Relationship. In all matters relating to this Agreement, the
Independent Contractor shall be acting as an independent contractor. Neither the
Independent Contractor nor employees of the Independent Contractor are employees
of the Corporation under the meaning or application of any federal or state
unemployment or insurance laws or worker's compensation laws, or otherwise. The
Independent Contractor shall assume all liabilities or obligations imposed by
any one or more of such laws with respect to employees of the Independent
Contractor in the performance of this Agreement. The Independent Contractor
shall not have any authority to assume or create any obligation, express or
implied, on behalf of the Corporation, and the Independent Contractor shall have
no authority to represent itself as an agent, employee or in any other capacity
of the Corporation.
5. Proprietary and Intellectual Property Rights. Independent Contractor
acknowledges and agrees that the Corporation owns the entire right, title and
interest to all (i) tangible and intangible property and work products delivered
and/or produced or created in connection with this Agreement; and (ii) all
inventions made, conceived, reduced to practice or authored by the Independent
Contractor or the Independent Contractor's employees or subcontractors, either
solely or jointly with others, during the performance of this Agreement, or with
the use of information, materials, or facilities of the Corporation during the
period in which the Independent Contractor is retained by the Corporation or its
successor in business, under this Agreement or any extensions or renewals
thereof. Independent Contractor further acknowledges that any copyrightable work
prepared by Independent Contractor or the Independent Contractor's employees or
subcontractors under this Agreement shall be "work for hire" for the Corporation
under the copyright laws of the United States, it being the intent of this
Agreement to vest full and exclusive ownership rights in the Corporation,
including, but not limited to, the exclusive right to copy and prepare
derivative works. To the extent such work may not be deemed "work for hire"
under applicable law, Independent Contractor hereby assigns to the Corporation
all right, title and interest in and to all copyrights for such work. The
Independent Contractor shall (and will ensure that its employees and
subcontractors shall) sign, execute, and acknowledge or cause to be signed,
executed and acknowledged any and all documents and to perform such acts as may
be necessary, useful or convenient for the purpose of securing for the
Corporation or its nominees, patent, trademark or copyright protection
throughout the world upon all such items.
6. Warranties and Representations. The Independent Contractor warrants and
represents that the services to be provided under this Agreement will not
violate or in any way infringe any patents, trademarks, copyrights, trade
secrets or other proprietary rights of third parties, and that the performance
of services under this Agreement shall be of professional quality conforming to
generally accepted consulting practices.
<PAGE>
7. Indemnification. The Independent Contractor shall defend, indemnify and hold
the Corporation, its affiliates, employees, agents and customers harmless from
and against (i) any claim of infringement of any patent, trademark, copyright,
trade secret or other proprietary right; (ii) any loss, damage or claim arising
in connection with or out of the performance or non-performance of Independent
Contractor under this Agreement; (iii) defective cost or pricing data submitted
by Independent Contractor, and (iv) any breach of any provision of this
Agreement by Independent Contractor.
8. Notice. All notices, including notices of address changes, required to be
sent hereunder shall be in writing and shall be deemed to have been given when
mailed to the address provided by the Independent Contractor or to the
Corporation at the address provided by the Corporation.
9. Severability. In the event any provision of this Agreement is held to be
invalid or unenforceable, the remaining provisions of this Agreement will remain
in full force and effect.
10. Waiver. The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent default or
breach.
11. Entire Agreement. This Agreement constitutes the complete agreement between
the parties and supersedes all previous agreements or representations, written
or oral, with respect to the services described herein. This Agreement may not
be modified or amended, except in writing signed by a duly authorized
GRC INTERNATIONAL, INC.
EMPLOYMENT AGREEMENT
(CEO)
THIS EMPLOYMENT AGREEMENT is made in Vienna, Virginia as of July 1, 1998 by and
between Gary L. Denman (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 ("GRCI"). The term
"Company" shall include GRCI and any parent, subsidiary or affiliate of GRCI. 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
Board of Directors ("Board") of GRC International, Inc. ("GRCI"). 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 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 GRCI, in writing, if I engage in
any outside business activity, and I will obtain the prior written approval of
GRCI, 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
GRCI, compete with or conflict with my employment with the Company. While
employed by the Company, absent the express, prior written authorization of the
Board, 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.
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
<PAGE>
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.
(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 GRCI 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 GRCI. The following are
some examples of Proprietary Information, even if not marked or identified as
such:
<PAGE>
(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 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 three fiscal years of my employment hereunder, the Company shall
pay me the annual salary set forth in Exhibit A, Item 3(a) ("Gross Annual
Salary").
(b) For each of the three fiscal years of my employment hereunder, the Company
shall also pay me the Gross Annual Bonus specified in Exhibit A, Item 3(b)
("Gross Annual Bonus").
(c) The Company will pay up to $10,000 during each fiscal year of this Agreement
to legal, accounting and other professionals of Employee's choice who provide
estate planning, tax planning and related services to Employee. Employee shall
submit such
<PAGE>
invoices to the Company together with a written request that the Company pay
such invoices to the applicable professional(s). Such professionals shall be
selected by Employee in his sole discretion and the Company shall have no
liability whatsoever with respect to the selection of such professionals.
(d) The Company will provide me with an automobile allowance of up to $1,000 per
month to cover expenses of ownership of a new Lexus automobile. In addition, the
Company will reimburse my actual, reasonable expenses of operating the vehicle.
6. Lifetime Dental and Vision Coverage for Employee and Spouse.
(a) If Employee has not breached this Employment Agreement and remains employed
hereunder until the Termination Date (unless Employee's employment is terminated
by the Company without Cause or the Employee terminates employment for Good
Reason or by reason of disability or death), Employee shall be entitled to
coverage for Employee and his spouse Elizabeth J. Denman ("Spouse") under the
Company's standard dental and vision insurance policy after the termination of
Employee's employment with the Company, for their lifetimes (this benefit is
hereinafter referred to as "Lifetime Coverage").
(b) (i) If, for any policy year beginning after the termination of Employee's
employment with the Company, in which policy year Employee and Spouse are both
alive for any portion of such policy year, "Quantity X" (defined as the
Company's per employee cost for active employees of the Company for the type of
insurance provided to Employee and Spouse in that policy year) is less than
"Quantity Y" (defined as the Company's per employee cost for the type of
insurance provided to Employee and Spouse as of the termination of Employee's
employment, plus cumulative annual increases of 5% for each policy year to begin
after the termination of Employee's employment), then, subject to the provisions
of paragraph (ii) of this Section 6(b), the Company shall also pay Employee in
cash, within 90 days after the end of each such policy year, an amount equal to
the difference between Quantity X, and Quantity Y, so that Employee receives an
annual benefit equivalent to the greater of Quantity X or Quantity Y. If
Quantity X is greater than Quantity Y, Employee shall not be obligated to
reimburse the Company for such excess. If, in any policy year, the Company is
unable to cover Employee and Spouse under its dental and vision policy for any
reason, or if such coverage would result in adverse tax consequenses to the
Company or any of its Employees, the Company's only obligation to Employee under
this Section 6 shall be to pay Employee Quantity Y for such year.
(ii) Regarding the Lifetime Coverage, it is the intent of the parties
that the Company's cost for the Lifetime Coverage in any policy year in which
both Employee and Spouse are alive for any portion of such policy year shall in
no event exceed the greater of Quantity X or Quantity Y, and that the Lifetime
Coverage not result in a windfall to Employee or Spouse, but simply to provide
them, after the termination of Employee's employment with the Company, with
roughly the level of dental and vision insurance coverage which the Company
provided them while Employee was employed by the Company (the current Company
cost of which is estimated to be approximately
<PAGE>
$733 annually), with a limit on the Company's financial obligation should it be
unable to arrange for such coverage. With that being the intent, by way of
example, if the government came to provide universal dental care with
essentially the equivalent benefits now provided by the Company, the Company
would no longer be obligated to provide Employee or Spouse with dental benefits.
Similarly, if the government came to provide universal vision care with
essentially the equivalent benefits now provided by the Company, the Company
would no longer be obligated to provide Employee or Spouse with vision benefits.
(c) (i) If, for any policy year beginning after the termination of Employee's
employment with the Company, in which policy year either Employee or Spouse is
deceased during the entirety of such policy year, "Quantity X" (defined as the
Company's per employee cost for the type of insurance provided to Employee or
Spouse in that policy year) is less than "Quantity Y" (defined as the Company's
per employee cost, for an unmarried active employee of the Company with no
additional insured person, for the type of insurance provided to Employee as of
the termination of Employee's employment, plus cumulative annual increases of 5%
for each policy year to begin after the termination of Employee's employment),
then, subject to the provisions of paragraph (ii) of this Section 6(c), the
Company shall also pay Employee or Spouse, in cash, within 90 days after the end
of each such policy year, an amount equal to the difference between Quantity X,
and Quantity Y, so that Employee or Spouse receives an annual benefit equivalent
to the greater of Quantity X or Quantity Y. If Quantity X is greater than
Quantity Y, neither Employee nor Spouse shall be obligated to reimburse the
Company for such excess. If, in any policy year, the Company is unable to cover
Employee or Spouse under its dental and vision policy for any reason, or if such
coverage would result in adverse tax consequences to the Company or any of its
employees, the Company's only obligation to Employee (or Spouse, if Employee is
deceased) under this Section 6 shall be to pay Employee (or Spouse, if Employee
is deceased) the equivalent of Quantity Y for such year. By way of example, if
the Company were unable to include Spouse in its group policy after Employee's
death, the Company's only obligation with respect to Spouse would be to pay
Spouse Quantity Y each year of Spouse's life after Employee's death.
(ii) Regarding the Lifetime Coverage, it is the intent of the parties
that the Company's cost for the Lifetime Coverage in any policy year in which
either Employee or Spouse is deceased for the entirety of such policy year shall
in no event exceed the greater of Quantity X or Quantity Y, and that the
Lifetime Coverage not result in a windfall to Employee or Spouse, but simply to
provide them, after the termination of Employee's employment with the Company,
with roughly the level of dental and vision insurance coverage which the Company
would have provided to an unmarried employee with no additional insured person,
while Employee was employed by the Company (the current Company cost of which is
estimated to be approximately $346 annually), with a limit on the Company's
financial obligation should it be unable to arrange for such coverage. With that
being the intent, by way of example, if the government came to provide universal
dental care with essentially the equivalent benefits now provided by the
Company, the Company would no longer be obligated to
<PAGE>
provide Employee or Spouse with dental benefits. Similarly, if the government
came to provide universal vision care with essentially the equivalent benefits
now provided by the Company, the Company would no longer be obligated to provide
Employee or Spouse with vision benefits.
(d) The provisions of this Section 6 shall survive any termination of this
Agreement.
7. 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 or is
inapplicable to me, 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.
8. TERMINATION AND SEVERANCE.
(a) The term of the employment relationship provided for herein shall be for
three (3) years, and shall commence as of the Effective Date of this Agreement
and end on the Termination Date of this Agreement, both as specified in Exhibit
A, Item 2. Except as provided in Section 8(f) regarding termination during the
thirty (30) month period following a Change in Control, this Agreement may be
terminated by the Company immediately for Cause by written notice to me. For
purposes of this Agreement, "Cause" means:
(i) the willful and continued failure of Employee to substantially
perform his or her duties with the Company (other than any such
failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to Employee by the Company which specifically identifies
the manner in which the Company believes that Employee has not
substantially performed his or her duties;
(ii) the willful engaging by Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company;
(iii)Employee's personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in
personal profit to Employee at the expense of the Company; or
<PAGE>
(iv) willful violation by Employee of any law, rule or regulation
(other than traffic violations, misdemeanors or similar offenses)
or cease-and-desist order, court order, judgment or supervisory
agreement, which violation is materially and demonstrably
injurious to the Company.
For purposes of the preceding clauses (i) through (iv), no act or failure to
act, on the part of Employee, shall be considered "willful" unless it is done,
or omitted to be done, by Employee in bad faith and without reasonable belief
that Employee's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon the instructions or with the express approval
of the Board or of a Company officer with authority to direct Employee or based
upon the advice of counsel for the Company, shall be conclusively presumed to be
done, or omitted to be done, by Employee in good faith and in the best interests
of the Company.
(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 in Control, my
employment may be terminated at any time by either party with or without Cause
on written notice to the other party, provided, however, that:
if:
(i) without Cause, the Company terminates my employment or terminates
this Agreement or gives me notice of either of such terminations;
or
(ii) I terminate my employment for Good Reason,
<PAGE>
then:
(x) in addition to any Additional Compensation I have earned, the
Company shall pay me a lump-sum severance payment on the date of
termination of my employment in an amount equal to two (2) times
my Gross Annual Salary, plus two (2) times my Target Gross Annual
Bonus, less any income, excise, employment or other tax
withholdings which the Company is required by law to deduct
therefrom;
(y) the Company shall continue to provide me with the same level of
insurance benefits and officer perquisites which I have been
receiving from the Company immediately prior to termination, and
such benefits and perquisites 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
(z) the Company shall reimburse me for any legal fees and expenses I
incur in successfully enforcing my rights under this Agreement, if
the Company fails to honor such rights.
For purposes of this Agreement, "Good Reason" means the occurrence, after the
Change in Control, of any of the following events:
(A) the Company materially diminishes my level of responsibility
or position in the Company;
(B) the Company materially diminishes my salary or my bonus
potential;
(C) the Company fails to provide me with generally the same
level of benefits or perquisites provided to other Company
executives in comparable positions;
(D) the Company requires me to relocate to an office more than
25 miles from my place of employment immediately prior to
the Change in Control; or
(E) the Company materially breaches this Agreement (including
but not limited to the terms set forth on Exhibit A hereto)
in any other way;
provided, however, that the foregoing clauses (A) through (E) shall not include
isolated, insubstantial or inadvertent actions of the Company not taken in bad
faith which are remedied by the Company promptly after receipt of notice thereof
given by Employee.
For purposes of this Agreement, "Target Gross Annual Bonus" means the Gross
Annual Bonus which Employee would receive if the Company achieved its budget for
the fiscal year in which termination of employment occurs. For example, (A) if
employment terminates in June 1999, the Target Gross Annual Bonus is determined
by
<PAGE>
reference to the Company's budgeted annual net income for fiscal 1999,
determined without regard to any extraordinary items of income or loss, and (B)
if employment terminates in July 1999, the Target Gross Annual Bonus is
determined by reference to the Company's budgeted annual net income for fiscal
2000, determined without regard to any extraordinary items of income or loss.
(g) For purposes of this Agreement, a Change in Control means 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) GRCI or any of its
subsidiaries, (B) a trustee or other fiduciary holding securities under an
employee benefit plan of GRCI 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 GRCI in
substantially the same proportions as their ownership of stock of GRCI 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 GRCI (not including in the securities beneficially owned by such
Person any securities acquired directly from GRCI or its affiliates)
representing 25% or more of the combined voting power of GRCI'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 and any new director (other than a
director designated by a Person who has entered into an agreement with GRCI to
effect a transaction described in clause (i), (iii) or (iv) of this paragraph)
whose election by the Board or nomination for election by GRCI'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 GRCI approve (or in the event no approval of
GRCI's shareholders is required, GRCI consummates) a merger or consolidation of
GRCI with any other corporation, other than (A) a merger or consolidation which
would result in the voting securities of GRCI 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 GRCI, at least 65% of the combined voting power of the
voting securities of GRCI or such surviving entity outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of GRCI (or similar transaction) in which no Person
acquires more than 50% of the combined voting power of GRCI's then outstanding
securities; or
<PAGE>
(iv) the shareholders of GRCI approve (or in the event no approval of
GRCI's shareholders is required, GRCI enters into) a plan of complete
liquidation of GRCI or an agreement for the sale or disposition by GRCI of all
or substantially all GRCI's assets.
(h) Notwithstanding any other provision of this Agreement, in the event that any
payment or benefit received or to be received by Employee in connection with a
Change in Control or the termination of Employee's employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with
GRCI, any Person whose actions result in a Change in Control or any person
affiliated with GRCI 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 reduction (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 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 Employee shall
have effectively waived in writing prior to 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 GRCI
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 GRCI's independent auditors in accordance with the principles of Sections
280G(d)(3) and (d)(4) of the Code. For purposes of this Section 8(h), the term
"Severance Benefits" means the benefits provided for by clauses (x) and (y) of
Section 8(f) hereof.
9. 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 GRCI 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 Chairman, with a copy to the Senior Vice President, General Counsel &
Secretary, GRC International, Inc., 1900 Gallows Road, Vienna, Virginia 22182.
<PAGE>
10. 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.
(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 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.
11. ASSIGNMENT; SUCCESSORS. 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.
12. 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.
13. 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.
14. 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
<PAGE>
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
this 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 Joseph R. Wright, Jr.
Sr. Vice President, General Counsel & Sec. Chairman of the Board
WITNESS EMPLOYEE
- --------------------------------- ---------------------------
Gary L. Denman
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
By:
----------------------------
Leslie B. Disharoon, Committee Chairman
<PAGE>
EXHIBIT A
DETAILS OF EMPLOYMENT
EMPLOYEE: Gary L. Denman
ITEM 1(a) Position: President & CEO
ITEM 1(b) Place of Employment: Vienna, VA
ITEM 2 Effective Date of this Agreement: July 1, 1998
Effective Date of this Exhibit: July 1, 1998
Termination Date of this Agreement: June 30, 2001
ITEM 3(a) Gross Annual Salary:
Three Hundred Thirty Thousand Dollars ($330,000)
ITEM 3(b) Gross Annual Bonus:
Equal to 2% of the Company's annual net income, determined
without regard to any extraordinary items of income or loss,
as reported by the Company in its audited consolidated
financial statements
ITEM 4 Notice to Employee:
Gary L. Denman Gary L. Denman
1900 Gallows Road and/ 8427 Blevins Way Court
Vienna, VA 22182 or Vienna, VA 22182
EMPLOYEE: GRC INTERNATIONAL, INC.
By:
- --------------------------------- -------------------------
Gary L. Denman Joseph R. Wright, Jr.
Chairman of the Board
APPROVED AND RATIFIED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
GRC INTERNATIONAL, INC.
By:
-----------------------------
Leslie B. Disharoon, Committee Chairman
<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
---------------------------
Gary L. Denman
---------------------------
(Date)
<PAGE>
EXHIBIT C
TERMINATION STATEMENT
(to be signed upon termination of employment)
1. I, Gary L. Denman, am cognizant of my legal obligations, as stated in a
certain EMPLOYMENT AGREEMENT dated July 1, 1998 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 Company
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
----------------------- ------------------------
----------------------- ------------------------
----------------------- ------------------------
----------------------- ------------------------
<PAGE>
EMPLOYEE:
-----------------------
Gary L. Denman
-----------------------
(Date)
GRC INTERNATIONAL, INC.
EMPLOYMENT AGREEMENT
(SENIOR VICE PRESIDENT OR ABOVE - 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 ("GRCI"). The term "Company" shall include GRCI and
any parent, subsidiary or affiliate of GRCI. 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
Board of Directors ("Board") of GRC International, Inc. ("GRCI"). 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 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 GRCI, in writing, if I engage in
any outside business activity, and I will obtain the prior written approval of
GRCI, 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
GRCI, compete with or conflict with my employment with the Company. While
employed by the Company, absent the expressed, prior written authorization of
the Board, 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.
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
<PAGE>
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.
(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 GRCI 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 GRCI. The following are
some examples of Proprietary Information, even if not marked or identified as
such:
<PAGE>
(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 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 my 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
<PAGE>
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 or is inapplicable to me, 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) Except as provided in Section 7(f) regarding termination during the thirty
(30) month period following a Change in Control, this Agreement may be
terminated by either party on six (6) months advance written notice to the other
party, and this Agreement may be terminated by the Company immediately for Cause
by written notice to me. For purposes of this Agreement, "Cause" means:
(i) the willful and continued failure of Employee to substantially
perform his or her duties with the Company (other than any such
failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to Employee by the Company which specifically identifies
the manner in which the Company believes that Employee has not
substantially performed his or her duties;
(ii) the willful engaging by Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company;
(iii)Employee's personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in
personal profit to Employee at the expense of the Company; or
(iv) willful violation by Employee of any law, rule or regulation
(other than traffic violations, misdemeanors or similar offenses)
or cease-and-desist order, court order, judgment or supervisory
agreement, which violation is materially and demonstrably
injurious to the Company.
For purposes of the preceding clauses (i) through (iv), no act or failure to
act, on the part of Employee, shall be considered "willful" unless it is done,
or omitted to be done, by Employee in bad faith and without reasonable belief
that Employee's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon the instructions or with the express approval
of the Board or of a Company officer
<PAGE>
with authority to direct Employee or based upon the advice of counsel for the
Company, shall be conclusively presumed to be done, or omitted to be done, by
Employee in good faith and in the best interests of the Company.
(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 in Control, my
employment may be terminated at any time by either party with or without Cause
on written notice to the other party, provided, however, that:
if:
(i) without Cause, the Company terminates my employment or terminates
this Agreement or gives me notice of either of such terminations;
or
(ii) I terminate my employment for Good Reason,
then:
(x) in addition to any Additional Compensation I have earned, the
Company shall pay me a lump-sum severance payment on the date of
termination of my employment in an amount equal to two (2) times
my Gross Annual Salary, less any income, excise, employment or
other tax withholdings which the Company is required by law to
deduct therefrom;
(y) the Company shall continue to provide me with the same level of
insurance benefits and officer perquisites which I have been
receiving from the
<PAGE>
Company immediately prior to termination, and such benefits and
perquisites 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
(z) the Company shall reimburse me for any legal fees and expenses I
incur in successfully enforcing my rights under this Agreement, if
the Company fails to honor such rights.
For purposes of this Agreement, "Good Reason" means the occurrence, after the
Change in Control, of any of the following events:
(A) the Company materially diminishes my level of responsibility
or position in the Company;
(B) the Company materially diminishes my salary or my bonus
potential;
(C) the Company fails to provide me with generally the same
level of benefits or perquisites provided to other Company
executives in comparable positions;
(D) the Company requires me to relocate to an office more than
25 miles from my place of employment immediately prior to
the Change in Control; or
(E) the Company materially breaches this Agreement (including
but not limited to the terms set forth on Exhibit A hereto)
in any other way;
provided, however, that the foregoing clauses (A) through (E) shall not include
isolated, insubstantial or inadvertent actions of the Company not taken in bad
faith which are remedied by the Company promptly after receipt of notice thereof
given by Employee.
(g) For purposes of this Agreement, a Change in Control means 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) GRCI or any of its
subsidiaries, (B) a trustee or other fiduciary holding securities under an
employee benefit plan of GRCI 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 GRCI in
substantially the same proportions as their ownership of stock of GRCI 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 GRCI (not including in the securities beneficially owned by such
Person any securities acquired
<PAGE>
directly from GRCI or its affiliates) representing 25% or more of the combined
voting power of GRCI'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 and any new director (other than a
director designated by a Person who has entered into an agreement with GRCI to
effect a transaction described in clause (i), (iii) or (iv) of this paragraph)
whose election by the Board or nomination for election by GRCI'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 GRCI approve (or in the event no approval of
GRCI's shareholders is required, GRCI consummates) a merger or consolidation of
GRCI with any other corporation, other than (A) a merger or consolidation which
would result in the voting securities of GRCI 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 GRCI, at least 65% of the combined voting power of the
voting securities of GRCI or such surviving entity outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of GRCI (or similar transaction) in which no Person
acquires more than 50% of the combined voting power of GRCI's then outstanding
securities; or
(iv) the shareholders of GRCI approve (or in the event no approval of
GRCI's shareholders is required, GRCI enters into) a plan of complete
liquidation of GRCI or an agreement for the sale or disposition by GRCI of all
or substantially all GRCI's assets.
(h) Notwithstanding any other provision of this Agreement, in the event that any
payment or benefit received or to be received by Employee in connection with a
Change in Control or the termination of Employee's employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with
GRCI, any Person whose actions result in a Change in Control or any person
affiliated with GRCI 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 reduction (but after deduction of the net amount of
federal, state and local income taxes and FICA and Medicare taxes on such
<PAGE>
Total Benefits), over (ii) the amount of Excise Tax to which 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 Employee
shall have effectively waived in writing prior to 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 GRCI
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 GRCI'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 clauses (x) and (y) of
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 GRCI 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.
(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.
<PAGE>
10. ASSIGNMENT; SUCCESSORS. 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 this 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.
<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 & Sec. President & Chief Executive
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
<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
<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)
<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 Company
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
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
<PAGE>
EMPLOYEE:
----------------------------
(Signature)
----------------------------
(Please print name)
----------------------------
(Date)
GRC INTERNATIONAL, INC.
EMPLOYMENT AGREEMENT
(SENIOR VICE PRESIDENT - NOT 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 ("GRCI"). The term "Company" shall include GRCI and
any parent, subsidiary or affiliate of GRCI. 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
Board of Directors ("Board") of GRC International, Inc. ("GRCI"). 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 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 GRCI, in writing, if I engage in
any outside business activity, and I will obtain the prior written approval of
GRCI, 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
GRCI, compete with or conflict with my employment with the Company. While
employed by the Company, absent the expressed, prior written authorization of
the Board, 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.
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
<PAGE>
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.
(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 GRCI 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 GRCI. The following are
some examples of Proprietary Information, even if not marked or identified as
such:
<PAGE>
(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 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 my 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
<PAGE>
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 or is inapplicable to me, 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) Except as provided in Section 7(f) regarding termination during the thirty
(30) month period following a Change in Control, this Agreement may be
terminated by either party on six (6) months advance written notice to the other
party, and this Agreement may be terminated by the Company immediately for Cause
by written notice to me. For purposes of this Agreement, "Cause" means:
(i) the willful and continued failure of Employee to substantially
perform his or her duties with the Company (other than any such
failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to Employee by the Company which specifically identifies
the manner in which the Company believes that Employee has not
substantially performed his or her duties;
(ii) the willful engaging by Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company;
(iii)Employee's personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in
personal profit to Employee at the expense of the Company; or
(iv) willful violation by Employee of any law, rule or regulation
(other than traffic violations, misdemeanors or similar offenses)
or cease-and-desist order, court order, judgment or supervisory
agreement, which violation is materially and demonstrably
injurious to the Company.
For purposes of the preceding clauses (i) through (iv), no act or failure to
act, on the part of Employee, shall be considered "willful" unless it is done,
or omitted to be done, by Employee in bad faith and without reasonable belief
that Employee's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon the instructions or with the express approval
of the Board or of a Company officer
<PAGE>
with authority to direct Employee or based upon the advice of counsel for the
Company, shall be conclusively presumed to be done, or omitted to be done, by
Employee in good faith and in the best interests of the Company.
(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 in Control, my
employment may be terminated at any time by either party with or without Cause
on written notice to the other party, provided, however, that:
if:
(i) without Cause, the Company terminates my employment or terminates
this Agreement or gives me notice of either of such terminations;
or
(ii) I terminate my employment for Good Reason,
then:
(x) in addition to any Additional Compensation I have earned, the
Company shall pay me a lump-sum severance payment on the date of
termination of my employment in an amount equal to
one-and-one-half (1 1/2) times my Gross Annual Salary, less any
income, excise, employment or other tax withholdings which the
Company is required by law to deduct therefrom;
(y) the Company shall continue to provide me with the same level of
insurance benefits and officer perquisites which I have been
receiving from the
<PAGE>
Company immediately prior to termination, and such benefits and
perquisites shall be provided until the earlier of (A) such time
as I obtain new benefits coverage by reason of new employment, or
(B) the one-and-one-half (1 1/2) year anniversary of my
termination of employment with the Company; and
(z) the Company shall reimburse me for any legal fees and expenses I
incur in successfully enforcing my rights under this Agreement, if
the Company fails to honor such rights.
For purposes of this Agreement, "Good Reason" means the occurrence, after the
Change in Control, of any of the following events:
(A) the Company materially diminishes my level of responsibility
or position in the Company;
(B) the Company materially diminishes my salary or my bonus
potential;
(C) the Company fails to provide me with generally the same
level of benefits or perquisites provided to other Company
executives in comparable positions;
(D) the Company requires me to relocate to an office more than
25 miles from my place of employment immediately prior to
the Change in Control; or
(E) the Company materially breaches this Agreement (including
but not limited to the terms set forth on Exhibit A hereto)
in any other way;
provided, however, that the foregoing clauses (A) through (E) shall not include
isolated, insubstantial or inadvertent actions of the Company not taken in bad
faith which are remedied by the Company promptly after receipt of notice thereof
given by Employee.
(g) For purposes of this Agreement, a Change in Control means 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) GRCI or any of its
subsidiaries, (B) a trustee or other fiduciary holding securities under an
employee benefit plan of GRCI 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 GRCI in
substantially the same proportions as their ownership of stock of GRCI 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 GRCI (not including in the securities beneficially owned by such
Person any securities acquired
<PAGE>
directly from GRCI or its affiliates) representing 25% or more of the combined
voting power of GRCI'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 and any new director (other than a
director designated by a Person who has entered into an agreement with GRCI to
effect a transaction described in clause (i), (iii) or (iv) of this paragraph)
whose election by the Board or nomination for election by GRCI'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 GRCI approve (or in the event no approval of
GRCI's shareholders is required, GRCI consummates) a merger or consolidation of
GRCI with any other corporation, other than (A) a merger or consolidation which
would result in the voting securities of GRCI 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 GRCI, at least 65% of the combined voting power of the
voting securities of GRCI or such surviving entity outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of GRCI (or similar transaction) in which no Person
acquires more than 50% of the combined voting power of GRCI's then outstanding
securities; or
(iv) the shareholders of GRCI approve (or in the event no approval of
GRCI's shareholders is required, GRCI enters into) a plan of complete
liquidation of GRCI or an agreement for the sale or disposition by GRCI of all
or substantially all GRCI's assets.
(h) Notwithstanding any other provision of this Agreement, in the event that any
payment or benefit received or to be received by Employee in connection with a
Change in Control or the termination of Employee's employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with
GRCI, any Person whose actions result in a Change in Control or any person
affiliated with GRCI 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 reduction (but after deduction of the net amount of
federal, state and local income taxes and FICA and Medicare taxes on such
<PAGE>
Total Benefits), over (ii) the amount of Excise Tax to which 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 Employee
shall have effectively waived in writing prior to 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 GRCI
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 GRCI'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 clauses (x) and (y) of
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 GRCI 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.
(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.
<PAGE>
10. ASSIGNMENT; SUCCESSORS. 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 this 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.
<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 & Sec. President & Chief Executive
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
<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
<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)
<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 Company
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
-------------------------- ---------------------------
-------------------------- ---------------------------
-------------------------- ---------------------------
-------------------------- ---------------------------
<PAGE>
EMPLOYEE:
------------------------------
(Signature)
------------------------------
(Please print name)
------------------------------
(Date)
STRUCTURED EQUITY LINE FLEXIBLE FINANCINGSM AGREEMENT
between
CRIPPLE CREEK SECURITIES, LLC
and
GRC INTERNATIONAL, INC.
Dated as of January 21, 1997
Amended and Restated as of August 26, 1998
<PAGE>
STRUCTURED EQUITY LINE FLEXIBLE FINANCING(SM) AGREEMENT, dated as of
January 21, 1997 and amended and restated as of August 26, 1998 (the
"Agreement"), between Cripple Creek Securities, LLC (the "Investor"), a limited
liability company organized and existing under the laws of the State of
Delaware, and GRC International, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
the Company's Common Stock, par value $.10 per share (the "Common Stock"), for a
maximum aggregate Purchase Price of $18,000,000 (the "Maximum Offering Amount");
and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) promulgated by the Securities and Exchange Commission ("SEC")
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and/or upon such other exemption from the registration requirements of
the Securities Act as may be available with respect to any or all of the
investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 Additional Investment Amount". See Section 2.1(b)(iv).
Section 1.2 "Additional Purchase Date" shall mean, with respect to any
Investment Period for which the Company has delivered to the Investor an
Additional Purchase Notice, any Trading Day during such Investment Period on
which the Investor notifies the Company by delivery of an Investor Notice of its
election to purchase all or a portion of the Additional Investment Amount in
respect of such Investment Period.
Section 1.3 "Additional Purchase Notice". See Section 2.1(b)(iv).
Section 1.4 "Additional Warrant". See Section 2.7(b)(ii).
Section 1.5 "Cancellation Notice" shall mean a notice delivered by the
Company in its sole and absolute discretion to the Investor with respect to an
Investment Period notifying the Investor that it is not required to purchase the
Minimum Investment Amount and/or any Additional Investment Amount for such
Investment Period.
Section 1.6 "Closing" shall mean the consummation of each purchase and
sale of Common Stock pursuant to Section 2.1.
Section 1.7 "Closing Date" shall mean, with respect to each purchase
and sale of Common Stock pursuant to this Agreement, the third Trading Day
following Investor's notice to the Company of its election to purchase Common
Stock from the Company (as extended pursuant to Section 3.2(i)) provided all
conditions to the Closing have been satisfied.
<PAGE>
Section 1.8 "Commitment Period" shall mean the period commencing on
April 1, 1998 and expiring on the earliest to occur of (a) the election by the
Company to terminate the Investor's obligation to purchase Common Stock pursuant
to Section 10.4 herein, (b) the date on which the Investor shall have purchased
Common Stock pursuant to this Agreement for an aggregate Purchase Price of
$18,000,000 or such lesser maximum purchase amount as determined pursuant to
Section 2.2(d), (c) the date this Agreement is terminated pursuant to Section
2.6 or (d) the date occurring forty-two (42) months (subject to extension as
provided by Section 2.2(b)) from the date of commencement of such period.
Section 1.9 "Common Stock". See introductory paragraphs.
Section 1.10 "Condition Satisfaction Date". See Section 3.2.
Section 1.11 "Effective Date" shall mean January 30, 1997.
Section 1.12 "Equity Offering" shall mean the issuance or sale by the
Company (a) in a registered public offering or (b) in a transaction exempt from
or not subject to the registration requirements of the Securities Act of any
shares of Common Stock or securities which are convertible into or exchangeable
for its Common Stock or any warrants, options or other rights to subscribe for
or purchase its Common Stock or any such convertible or exchangeable securities
(other than securities issued or issuable under the Company's present or future
employee, officer, director or consultant stock or option or similar
equity-based compensation plans (collectively, the "Compensation Plans")), upon
the conversion or exchange of convertible or exchangeable securities or upon the
exercise of warrants (excluding the Warrant and the Additional Warrant), or
other rights, or upon the issuance of any shares of Common Stock issued upon
exercise of options, conversion or exchange of convertible or exchangeable
securities, warrants or other rights outstanding on the date of execution and
delivery of this Agreement (other than the Additional Warrant) and listed in the
SEC Documents on file with the SEC as of the date of this Agreement (other than
the Warrant and the Additional Warrant) and other than (i) shares of Common
Stock which may be issued upon exercise of options granted under the
Compensation Plans, (ii) shares of Common Stock which may be issued upon
exercise of the Warrant and the Additional Warrant, (iii) shares of Common Stock
or securities which are convertible into or exchangeable for Common Stock or any
warrants, options or other rights to subscribe for or purchase Common Stock or
any such convertible or exchangeable securities issued in strategic corporate
partnering transactions, and (iv) shares of Common Stock which may be issued
upon conversion of convertible debentures issued on the date of this Agreement
(and exercise of warrants issued in connection therewith).
Section 1.13 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
Section 1.14 "Floor Price". See Section 2.2(b).
Section 1.15 "Investment Amount" shall mean the amount invested by the
Investor with respect to any Optional Purchase Date as notified by the Investor
to the Company in accordance with Section 2.5(a) hereof, and with respect to any
Mandatory Purchase Date, Additional Purchase Date or Investor Incremental
Purchase Date, as the case may be, as notified by the Investor to the Company in
accordance with Sections 2.5(b), (c) and (d), respectively,
<PAGE>
which Investment Amount shall be at least $100,000 and shall be in increments of
$50,000 in excess thereof.
Section 1.16 "Investment Period" shall mean each three-month period
(subject to extension as provided by Section 2.2(b)) commencing on (a) in the
case of the first Investment Period, the first Trading Day subsequent to the
expiration of the Optional Purchase Period and (b) in the case of subsequent
Investment Periods, commencing on the Trading Day subsequent to the expiration
of the immediately preceding Investment Period.
Section 1.17 "Investor Incremental Purchase". See Section 2.1(b)(iii).
Section 1.18 "Investor Incremental Purchase Date" shall mean any
Trading Day during each Investment Period with respect to which a Mandatory
Purchase Notice has been given that the Investor in its sole discretion elects
by delivery of an Investor Incremental Purchase Notice to purchase shares of
Common Stock pursuant to an Investor Incremental Purchase.
Section 1.19 "Investor Incremental Purchase Notice" shall mean a notice
delivered by the Investor to the Company, notifying the Company of the
Investor's election to purchase Common Stock pursuant to an Investor Incremental
Purchase.
Section 1.20 "Investor Notice". See Section 2.5(e)(i).
Section 1.21 "Mandatory Purchase Date" shall mean, with respect to any
Investment Period for which the Company has delivered a Mandatory Purchase
Notice to the Investor, any Trading Day during such Investment Period on which
the Investor notifies the Company by delivery of an Investor Notice of its
election to purchase all or a portion of the Minimum Investment Amount in
respect of such Investment Period.
Section 1.22 "Mandatory Purchase Notice". See Section 2.5(b)(i).
Section 1.23 "Mandatory Purchase Period" shall mean the aggregate of
all Investment Periods during the Commitment Period.
Section 1.24 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company and which is material and adverse to the Company or to the Company and
such other entities controlled by the Company, taken as a whole and/or any
condition or situation which would prohibit or otherwise interfere with the
ability of the Company to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Warrant or the Additional
Warrant.
Section 1.25 "Maximum Offering Amount". See introductory paragraphs.
Section 1.26 "Minimum Investment Amount". See Section 2.1(b)(ii).
Section 1.27 "Minimum Offering Amount" shall mean the purchase of
Common Stock of the Company by the Investor for a minimum aggregate Purchase
Price of $5,000,000.
Section 1.28 "NASD" shall mean the National Association of Security
Dealers, Inc.
<PAGE>
Section 1.29 "Optional Purchase Date" shall mean any Trading Day during
the Optional Purchase Period that the Investor in its sole discretion elects by
delivery of an Optional Purchase Notice to purchase Common Stock from the
Company.
Section 1.30 "Optional Purchase Notice". See Section 2.5(a).
Section 1.31 "Optional Purchase Period" shall mean the period
commencing on April 1, 1998 and ending on September 30, 1998. Notwithstanding
any other provision in this Agreement, the Investor shall make no purchases of
Common Stock during the Optional Purchase Period.
Section 1.32 "Preliminary Purchase Notice." See Section 2.1(e).
Section 1.33 "Principal Market" shall mean the New York Stock Exchange,
the American Stock Exchange, or the Nasdaq National Market, whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.34 "Purchase Price". See Section 2.3.
Section 1.35 "Registration Rights Agreement". See Section 2.7(c).
Section 1.36 "Registration Statement". See Section 3.2(a).
Section 1.37 "Revolving Credit Agreement". See Section 3.2(f).
Section 1.38 "Securities Act". See introductory paragraphs.
Section 1.39 "SEC". See introductory paragraphs.
Section 1.40 "SEC Documents". See Section 5.2.
Section 1.41 "Stock Price". See Section 2.3.
Section 1.42 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business and on which trading of the Common
Stock on the Principal Market shall not have been suspended or limited.
Section 1.43 "Value of Open Market Trading" with respect to any Trading
Day shall mean the product of the reported trading volume of the Common Stock on
the Principal Market (in the case that the Principal Market is the New York
Stock Exchange or the American Stock Exchange, the reported trading volume of
the Common Stock shall be the reported traded volume on such exchange and shall
not be the composite trading volume and in the case that the Principal Market is
the Nasdaq National Market, the reported trading volume shall be 50% of the
amount reported) on any such day, multiplied by the weighted average trading
price (by trading volume) of the Common Stock on such day (each as determined in
accordance with Section 12.4 hereof); provided, however, that in the event that
the Company consummates a registered public offering of Common Stock (whether
primary or secondary), the Trading Day on which such
<PAGE>
transaction is consummated shall be excluded from any calculation under this
Agreement based upon the Value of Open Market Trading.
Section 1.44 "Warrant". See Section 2.7(a).
Section 1.45 "Warrant Exercise Price". See Section 2.7(a).
Section 1.46 "Warrant Shares". See Section 3.2(l).
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments.
(a) Subject to the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof) (i) during
the Optional Purchase Period the Investor may in its sole and absolute
discretion from time to time direct the Company to issue to the Investor, and
the Company shall be obligated to issue and sell to the Investor, shares of
Common Stock at the Purchase Price determined pursuant to Section 2.3 for an
aggregate Purchase Price of up to $3,000,000 and (ii) during the Mandatory
Purchase Period, the Company may in its sole and absolute discretion from time
to time elect to issue and sell to the Investor, and the Investor shall be
obligated to purchase from the Company, on such Mandatory Purchase Date,
Mandatory Purchase Dates, Additional Purchase Date or Additional Purchase Dates
as the Investor shall elect, shares of Common Stock at the Purchase Price
determined pursuant to Section 2.3.
(b) (i) The Investor shall have the right, but not the
obligation, at any time and from time to time during the Optional Purchase
Period to purchase Common Stock from the Company for an aggregate Purchase Price
of up to $3,000,000, by delivering an Optional Purchase Notice or Optional
Purchase Notices to the Company provided that (A) on the date of delivery of an
Optional Purchase Notice, the Stock Price shall not be below the Floor Price and
(B) on the Trading Day immediately preceding the date of delivery of an Optional
Purchase Notice all conditions provided in this Agreement for the delivery of an
Optional Purchase Notice are satisfied. Each Optional Purchase Notice shall set
forth the Investment Amount with respect to the Optional Purchase Date to which
it relates.
(ii) Subject to the terms and conditions of this Agreement,
on or before the tenth (10th) day preceding the commencement of an Investment
Period, the Company may deliver a Mandatory Purchase Notice to the Investor
which shall require the Investor to purchase shares of Common Stock from the
Company during such Investment Period for an aggregate Purchase Price of
$1,500,000, subject to the limitations imposed by Section 2.2(a) (the "Minimum
Investment Amount"), provided that on the date of delivery of the Mandatory
Purchase Notice and on the Trading Day immediately preceding the commencement of
such Investment Period all conditions provided in this Agreement for the
delivery of a Mandatory Purchase Notice are satisfied. A Mandatory Purchase
Notice shall be irrevocable by the Company. Upon delivery of such Mandatory
Purchase Notice, the Investor shall be obligated to purchase on the Closing Date
in respect of such Mandatory Purchase Date or Mandatory Purchase Dates as the
Investor elects during the Investment Period to which such Mandatory
<PAGE>
Purchase Notice relates, shares of Common Stock for an aggregate Purchase Price
equal to the Minimum Investment Amount. On each such Mandatory Purchase Date,
the Investor shall deliver to the Company an Investor Notice which shall set
forth the Investment Amount.
(iii) Subject to the terms and conditions of this Agreement,
the Investor may, but is not obligated to, during any Investment Period with
respect to which a Mandatory Purchase Notice has been given, purchase shares of
Common Stock from the Company at any time and from time to time in its sole and
absolute discretion during such Investment Period for an aggregate Purchase
Price (an "Investor Incremental Purchase"), provided that (A) the aggregate
Purchase Price for all shares of Common Stock to be acquired during such
Investment Period, whether pursuant to a Mandatory Purchase Notice, an
Additional Purchase Notice or an Investor Incremental Purchase Notice, shall not
exceed $3,000,000 and (B) the aggregate Purchase Price for all shares of Common
Stock previously acquired by the Investor under this Agreement, whether pursuant
to a Mandatory Purchase Notice, an Additional Purchase Notice or an Investor
Incremental Purchase Notice and to be acquired during such Investment Period
shall not exceed the Minimum Offering Amount unless otherwise agreed to by the
Company in writing or unless the Company has elected to sell to the Investor
shares of Common Stock in excess of the Minimum Offering Amount as provided
below. Any Investor Incremental Purchase shall, at the Investor's option and in
its sole and absolute discretion, be credited towards the Investor's Minimum
Investment Amount for up to two Investment Periods for which a Mandatory
Purchase Notice has been given. The Investor will notify the Company of its
intent to credit all or a portion of the Investor Incremental Purchase at any
time prior to the end of an Investment Period with respect to which the Investor
elects to apply such credit. At such time as the Investor shall have acquired
shares of Common Stock under this Agreement for an aggregate Purchase Price
equal to at least the Minimum Offering Amount, the Investor shall no longer have
the right to effect an Investor Incremental Purchase; provided, however, that
the Investor shall continue to have the right to effect such Investor
Incremental Purchase if the Company allows the Investor to do so by providing
its written consent. At such time as the Company has elected to sell to the
Investor shares of Common Stock in excess of the Minimum Offering Amount by
delivery of a Mandatory Purchase Notice to the Investor following the sale by
the Company to the Investor of shares of Common Stock for an aggregate Purchase
Price of at least the Minimum Offering Amount or by otherwise advising the
Investor in writing, the Investor's right to effect Investor Incremental
Purchases shall be restored as provided in this Subsection 2.1(b)(iii). Each
Investor Incremental Purchase Notice shall set forth the Investment Amount with
respect to the Investor Incremental Purchase Date to which it relates.
(iv) Subject to the terms and conditions of this Agreement,
on or before the tenth (10th) day immediately preceding the commencement of an
Investment Period, the Company may deliver a written notice to the Investor
(each such notice hereinafter referred to as an "Additional Purchase Notice")
requiring the Investor to purchase shares of Common Stock from the Company (in
addition to the Minimum Investment Amount) during such Investment Period for an
aggregate Purchase Price of up to $1,500,000 (which must be in increments of
$50,000), subject to the limitations imposed by Section 2.2(a) (the "Additional
Investment Amount"), provided that (A) the average Value of Open Market Trading
for the prior twenty (20) Trading Days preceding and excluding the date of
commencement of such Investment Period was at least $500,000, and (B) all
conditions precedent for delivery of an Additional Purchase Notice are satisfied
on the date of delivery of the Additional Purchase Notice and the Trading Day
immediately preceding the commencement of such Investment Period. An Additional
Purchase Notice shall be irrevocable by the Company. The Company may
<PAGE>
not deliver an Additional Purchase Notice with respect to any Investment Period
unless it has also delivered a Mandatory Purchase Notice with respect to such
Investment Period. Upon receipt of such Additional Purchase Notice, the Investor
shall be obligated to purchase on the Closing Date in respect of such Additional
Purchase Date or Additional Purchase Dates as the Investor elects during the
Investment Period to which such Additional Purchase Notice relates, shares of
Common Stock for an aggregate Purchase Price equal to the Additional Investment
Amount. On each such Additional Purchase Date or Additional Purchase Dates, the
Investor shall deliver to the Company an Investor Notice which shall set forth
the Investment Amount.
(c) Notwithstanding anything herein to the contrary, the
Investor shall not be required or entitled to purchase shares of Common Stock to
the extent such purchase would conflict with the provisions of Subsection
3.2(l)(i) herein.
(d) On the Closing Date in respect of an Optional Purchase
Date, Mandatory Purchase Date, Additional Purchase Date or Investor Incremental
Purchase Date, the Company shall sell to the Investor the number of shares of
Common Stock determined pursuant to Section 2.4(b); provided, however, that the
Investor shall not be required to purchase from the Company shares of Common
Stock pursuant to the terms of this Agreement for an aggregate Purchase Price in
excess of the Maximum Offering Amount.
(e) On or before the thirtieth (30th) day preceding the
commencement of an Investment Period, the Company agrees to deliver to the
Investor written notice (which notice shall not be considered legally binding
for purposes of this Agreement) indicating the Company's intentions with respect
to the Mandatory Purchase Notice and Additional Purchase Notice, if any, for the
next succeeding Investment Period (the "Preliminary Purchase Notice"); provided
that, in no event shall such Preliminary Purchase Notice be a substitute for a
Mandatory Purchase Notice or an Additional Purchase Notice as required by this
Agreement. The Company shall not deliver a Mandatory Purchase Notice or an
Additional Purchase Notice for an Investment Period if the Company has not
delivered a Preliminary Purchase Notice for such Investment Period. If the
Company delivers a Preliminary Purchase Notice for an Investment Period but then
fails to deliver a Mandatory Purchase Notice or an Additional Purchase Notice
for said Investment Period, then the Company shall pay any reasonable due
diligence expenses, subject to the limitations set forth in Section 11.2, that
the Investor incurred in anticipation of the delivery of a Mandatory Purchase
Notice or Additional Purchase Notice for said Investment Period.
Section 2.2 Limitation on Investment Amount.
(a) Notwithstanding the obligation of the Investor to purchase
shares of Common Stock pursuant to Section 2.1(b)(ii) and (iv), the aggregate
Investment Amount for any Investment Period (whether pursuant to a Mandatory
Purchase Notice or an Additional Purchase Notice or any combination thereof)
shall not exceed the lesser of (i) the amount set forth in the Mandatory
Purchase Notice or Additional Purchase Notice or any combination thereof which
shall not exceed $3,000,000, (ii) an amount equal to the product of (A) 8% of
the average daily Value of Open Market Trading of the Common Stock on the
Principal Market for each Trading Day on which the low trading price of the
Common Stock on the Principal Market is above the Floor Price during the
Investment Period immediately preceding the Investment Period with respect to
which a Mandatory Purchase Notice or an Additional Purchase Notice (or
combination thereof) is given times (B) the number of Trading Days on which the
low trading price of the
<PAGE>
Common Stock on the Principal Market is above the Floor Price in such
immediately preceding Investment Period (rounded up to the next increment of
$50,000), and (iii) an amount equal to the product of (A) 8% of the average
daily Value of Open Market Trading of the Common Stock on the Principal Market
for each Trading Day on which the low trading price of the Common Stock on the
Principal Market is above the Floor Price during the Investment Period with
respect to which a Mandatory Purchase Notice or an Additional Purchase Notice
(or a combination thereof) was given times (B) the number of Trading Days on
which the low trading price of the Common Stock on the Principal Market is above
the Floor Price in such Investment Period (rounded up to the next increment of
$50,000). Notwithstanding the limitations imposed by clauses (ii) and (iii) of
this Subsection 2.2(a) on the required investment during any Investment Period
in respect of a Mandatory Purchase Notice or an Additional Purchase Notice, the
Investor shall be entitled to effect an Investor Incremental Purchase during
such Investment Period in accordance with 2.1(b)(iii); provided, however, that
the Investor may not effect an Investor Incremental Purchase during such
Investment Period until all Mandatory Purchases and Additional Purchases, if
any, applicable to such Investment Period have been made.
(b) Notwithstanding anything to the contrary contained herein,
the Investor may not acquire any shares of Common Stock during the Optional
Purchase Period or any Investment Period (whether pursuant to an Optional
Purchase Notice, a Mandatory Purchase Notice, Additional Purchase Notice or an
Investor Incremental Purchase Notice) if the Stock Price during each and every
of the three (3) Trading Days prior to but excluding an Optional Purchase Date,
a Mandatory Purchase Date, an Additional Purchase Date or an Investor
Incremental Purchase Date shall be below $4.00 per share (the "Floor Price").
The Investment Period and the Commitment Period shall be extended by 1-1/2
Trading Days (rounded up to the next full Trading Day) for each Trading Day
within such Investment Period during which Stock Price is below the Floor Price;
provided, however, that if during any Investment Period during which the
Investor is obligated to purchase Common Stock pursuant to a Mandatory Purchase
Notice or an Additional Purchase Notice, the Stock Price shall be below the
Floor Price for more than twenty (20) Trading Days, (i) the Investment Period
and the Commitment Period shall be extended by thirty (30) Trading Days only,
provided, however, that in no event shall the Commitment Period extend beyond
forty-eight (48) months, (ii) the Investor shall not be required to purchase any
shares of Common Stock during the remainder of the Investment Period (as so
extended), regardless of its obligation to purchase Common Stock at the
commencement of the Investment Period and the number of shares of Common Stock
actually purchased during such Investment Period, and (iii) the Investor shall
have the option to purchase shares of Common Stock on any Trading Day (such
purchase to constitute an Investor Incremental Purchase) within the remainder of
the Investment Period provided that on such Trading Day the Stock Price shall
not be below the Floor Price.
(c) The Investor shall not purchase during any Investment
Period shares of Common Stock from the Company in excess of an aggregate
Purchase Price of $3,000,000 without the Company's prior written consent.
(d) If during the Mandatory Purchase Period the Company shall
deliver or shall have been deemed to deliver to the Investor more than six (6)
Cancellation Notices (other than Cancellations Notices delivered pursuant to
Section 2.5(c)(ii)), the Investor's obligation to purchase shares of Common
Stock up to the Maximum Offering Amount shall be reduced by $1,500,000 for each
subsequent Investment Period in which a Cancellation Notice (other than
Cancellation Notices delivered pursuant to Section 2.5(c)(ii)) is given.
<PAGE>
Section 2.3 Determination of Purchase Price. The purchase price per
share of the Company's Common Stock (the "Purchase Price") shall be 94% of the
low trading price of the Common Stock on the Principal Market, during the three
(3) Trading Days prior to but excluding an Optional Purchase Date, a Mandatory
Purchase Date, an Additional Purchase Date or an Investor Incremental Purchase
Date, as the case may be; provided, however, that if the low trading price is
below the Floor Price on any of such three (3) Trading Days, such Trading Day
shall not be considered in determining the Purchase Price, and the Purchase
Price shall be determined solely be reference to the remaining Trading Days in
such three (3) Trading Day period (the "Stock Price").
Section 2.4
(a) Closings. On each Closing Date (i) the Company shall
deliver to the Investor one or more certificates representing the number of
shares of Common Stock to be purchased by the Investor pursuant to Section 2.1
registered in the name of the Investor or, at the Investor's option, deposit
such certificate(s) into such account or accounts previously designated by the
Investor and (ii) the Investor shall deliver to the Company the amount
determined pursuant to Section 2.4(b) by federal funds wire transfer or transfer
of New York Clearing House funds to an account designated by the Company's Chief
Executive Officer or Chief Financial Officer or such other person as either of
them may designate in writing, on or before the Closing Date. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall deliver
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein.
(b) Payment for the Common Stock Purchased by the Investor. On
the Closing Date, the Investor shall pay to the Company the Investment Amount
(less any amounts withheld pursuant to Section 11.2) in such funds as provided
in 2.4(a), and shall receive from the Company the number of shares of Common
Stock determined by dividing the Investment Amount by the Purchase Price
(rounded to the nearest whole number of shares).
Section 2.5 Mechanics of Notification.
(a) Delivery of Optional Purchase Notice. At any time and from
time to time during the Optional Purchase Period, the Investor may deliver a
written notice to the Company (each such notice hereinafter referred to as an
"Optional Purchase Notice") setting forth the Investment Amount, subject to the
limitations imposed by Sections 2.1 and 3.2(l) herein, which the Investor
intends to purchase from the Company. The Investor may not deliver an Optional
Purchase Notice to the Company if the conditions set forth in Section 2.1(b)(i)
are not satisfied or if the events described in Section 2.6 occur, or if a
dispute exists between the Investor and the Company pursuant to Section 3.3 or
if the conditions set forth in Article III are not satisfied. If such Optional
Purchase Notice does not comply with Section 2.1(b)(i), any of the events
described in Section 2.6 occur, a dispute exists between the Investor and the
Company pursuant to Section 3.3 or if the conditions set forth in Article III
are not satisfied, on or after the date on which an Optional Purchase Notice is
given but prior to the closing of the transaction on the Closing Date associated
with such Optional Purchase Notice, such Optional Purchase Notice shall be null,
void and of no further force or effect.
<PAGE>
(b) Delivery of Mandatory Purchase Notice.
(i) On or before the tenth (10th) day immediately preceding
the commencement of an Investment Period, the Chief Executive Officer or the
Chief Financial Officer (or such other person as designated by either in
writing) of the Company may deliver a written notice to the Investor (each such
notice hereinafter referred to as a "Mandatory Purchase Notice") which shall
require the Investor to purchase shares of Common Stock from the Company for an
aggregate Purchase Price of $1,500,000, subject to the limitations imposed by
Sections 2.1 and 3.2(l) herein. The Company may not deliver a Mandatory Purchase
Notice to the Investor if the conditions set forth in Section 2.1(b)(ii) are not
satisfied or if the events described in Section 2.6 occur, or if a dispute
exists between the Investor and the Company pursuant to Section 3.3, or if the
conditions set forth in Article III are not satisfied. If the conditions set
forth in Section 2.1(b)(ii) are not satisfied, any of the events described in
Section 2.6 occur, a dispute exists between the Investor and the Company
pursuant to Section 3.3 or if the conditions set forth in Article III are not
satisfied, on or after the date on which a Mandatory Purchase Notice is given
but prior to the closing of the transaction on the Closing Date associated with
such Mandatory Purchase Notice, the Investor Notice relating to such Mandatory
Purchase Notice shall be, at the option of the Investor, null, void and of no
further force or effect.
(ii) In the event the Company intends not to obligate the
Investor to purchase Common Stock during an Investment Period, on or before the
tenth (10th) day preceding the commencement of such Investment Period, the
Company shall deliver a Cancellation Notice to the Investor. Such Cancellation
Notice shall be irrevocable by the Company.
(iii) In the event the Company fails to deliver a Mandatory
Purchase Notice or a Cancellation Notice pursuant to clause (b)(i) or (b)(ii) on
or before the tenth (10th) day preceding the commencement of an Investment
Period, the Company shall be deemed to have delivered a Cancellation Notice with
respect to such Investment Period.
(c) Delivery of an Additional Purchase Notice.
(i) On or before the tenth (10th) day immediately preceding
the commencement of an Investment Period, the Chief Executive Officer or the
Chief Financial Officer (or such other person as designated by either in
writing) of the Company may deliver an Additional Purchase Notice to the
Investor stating the Additional Investment Amount, subject to the limitations
imposed by Sections 2.1 and 3.2(l) herein, which the Investor shall be required
to purchase during such Investment Period (in addition to shares of Common Stock
which the Investor is required to purchase pursuant to the delivery by the
Company to the Investor of a Mandatory Purchase Notice). An Additional Purchase
Notice may not be delivered if a Mandatory Purchase Notice is not delivered with
respect to the same Investment Period. The Company may not deliver an Additional
Purchase Notice to the Investor if the conditions set forth in Section
2.1(b)(iv) are not satisfied or if the events described in Section 2.6 occur, or
if a dispute exists between the Investor and the Company pursuant to Section
3.3, or if the conditions set forth in Article III are not satisfied. If the
conditions set forth in Section 2.1(b)(iv) are not satisfied, any of the events
described in Section 2.6 occur, a dispute exists between the Investor and the
Company pursuant to Section 3.3 or if the conditions set forth in Article III
are not satisfied, on or after the date on which an Additional Purchase Notice
is given but prior to the closing of the transaction on the Closing Date
associated with such Additional Purchase Notice,
<PAGE>
such Additional Purchase Notice shall be, at the option of the Investor, null,
void and of no further force or effect.
(ii) In the event the Company intends to not require the
Investor to purchase Common Stock during an Investment Period pursuant to an
Additional Purchase Notice, on or before the thirtieth (30th) day preceding the
commencement of such Investment Period, the Company shall deliver a Cancellation
Notice to the Investor. Such Cancellation Notice shall be irrevocable.
(d) Delivery of an Investor Incremental Purchase Notice. During
any Investment Period with respect to which the Company delivers a Mandatory
Purchase Notice the Investor may, in its sole and absolute discretion, at any
time and from time to time deliver an Investor Incremental Purchase Notice to
the Company stating the amount of the Investor Incremental Purchase for that
Investment Period, subject to the limitations imposed by Section 2.1(b)(iii). If
any of the events described in Section 2.6 occur, a dispute exists between the
Investor and the Company pursuant to Section 3.3 or if the conditions set forth
in Article III are not satisfied, on or after the date on which an Investor
Incremental Purchase Notice is given but prior to the closing of the transaction
on the Closing Date associated with such Investor Incremental Purchase Notice,
such Investor Incremental Purchase Notice shall be, at the option of the
Investor, null, void and of no further force or effect.
(e) Date of Delivery of an Optional Purchase Notice, an Investor
Incremental Purchase Notice an Investor Notice, a Mandatory Purchase Notice, an
Additional Purchase Notice or Other Notice.
(i) An Optional Purchase Notice, an Investor Incremental
Purchase Notice, and any other notice sent by the Investor to the Company
notifying the Company of the Investor's election to purchase Common Stock (each
an "Investor Notice") and any other notice sent by the Investor to the Company
shall be deemed to be delivered on the Trading Day it is received by facsimile
or otherwise by the Company if such notice is received prior to 5:00 P.M. New
York time, or on the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 5:00 P.M. New York time (in which case the
provisions of Sections 2.1(b) and 2.2(b) must be satisfied as of such
immediately succeeding Trading Day).
(ii) A Mandatory Purchase Notice or an Additional Purchase
Notice shall be deemed to be delivered on the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to 5:00
P.M. New York time, or on the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 5:00 P.M. New York time or on any day
which is not a Trading Day (in which case the provisions of Sections 2.1(b) and
2.2(b) must be satisfied as of such immediately succeeding Trading Day).
Section 2.6 Termination or Suspension of Investment Obligation.
(a) The Investor shall not purchase any shares of Common Stock
from the Company on any Closing Date nor may an Optional Purchase Notice or
Additional Purchase Notice be delivered nor shall a Mandatory Purchase Notice be
delivered at any time during the Commitment Period that there shall exist any
one or more of the following: (i) the withdrawal of the effectiveness of the
Registration Statement, (ii) the Company's failure to satisfy the requirements
of Section 3.2 or (iii) any failure or interruption in the material compliance
by the Company with the covenants provided in Article VI. In the event that the
Company shall have delivered a Mandatory Purchase Notice or Additional Purchase
Notice with respect to an Investment Period and one or more of the events listed
in clauses (i) through (iii) above exist at the time such Mandatory Purchase
Notice or Additional Purchase Notice is given but has not been cured by the
Trading Day preceding the commencement of the Investment Period to which
<PAGE>
such notice relates, the Mandatory Purchase Notice or Additional Purchase Notice
shall be void and of no effect. In the event that the Company shall have
delivered a Mandatory Purchase Notice or Additional Purchase Notice with respect
to an Investment Period and one or more of the events listed in clauses (i)
through (iii) above occur during the Investment Period, the obligation of the
Investor to purchase shares of Common Stock during such Investment Period shall
be reduced (but in no event shall such reduction result in a negative number) by
subtracting an amount calculated by multiplying the amount which the Investor
would otherwise be obligated to purchase by a fraction, the numerator of which
shall be 1-1/2 times the number of Trading Days within such Investment Period
that such event or events exist and the denominator of which shall be the number
of Trading Days within such Investment Period (without adjustment for the Stock
Price being below the Floor Price pursuant to Section 2.2(b)) from the
Investor's obligation during such Investment Period. If such event remains
uncured for a period of greater than five (5) Trading Days or exists during the
last five (5) Trading Days of the Investment Period, the remaining obligation of
the Investor to purchase shares of Common Stock pursuant to a Mandatory Purchase
Notice or an Additional Purchase Notice shall be canceled for the remainder of
the Investment Period. If such event exists on the last day preceding an
Investment Period on which the Company may deliver a Mandatory Purchase Notice
with respect of such Investment Period, the Company shall have five (5) Trading
Days in which to cure, and if cured within such period, the commencement of the
Investment Period shall be postponed for such number of days during such period
as the event remained uncured, but in no event shall such Investment Period be
postponed for a period in excess of five (5) Trading Days.
(b) The obligation of the Investor to purchase shares of Common
Stock under the Agreement may, if the Investor in its sole and absolute
discretion so elects, be terminated (including with respect to a Closing Date
which has not yet occurred) in the event that (i) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement or any
withdrawal of the effectiveness of the Registration Statement for any reason
other than as a result of subsequent corporate developments which would require
the Registration Statement to be amended to reflect such event in order to
maintain its compliance with the disclosure requirements of the Securities Act
or (ii) the Company shall at any time fail to comply with the requirements of
Sections 6.2, 6.3, 6.4, 6.5 or 6.6 and the Company shall fail to cure such
noncompliance within (i) five (5) Trading Days after receipt of notice from the
Investor of its election to terminate this Agreement provided that the Investor
has been notified by the Company of such noncompliance within two (2) Trading
Days of the occurrence of such noncompliance or, if the noncompliance relates to
a failure of the Company to comply with the provisions of Section 6.5, the
Investor otherwise becomes aware of such noncompliance or (ii) otherwise within
five (5) Trading Days of the occurrence of such noncompliance; provided,
however, that notwithstanding the foregoing, the Investor may, in its sole and
absolute discretion, terminate this Agreement if the Company shall fail to
maintain the listing of the Common Stock on a Principal Market, or if trading of
the Common Stock on a Principal Market shall have been suspended for a period of
five (5) consecutive Trading Days.
Section 2.7 Commitment Fee.
(a) On the Effective Date, the Company will issue to the Investor
a warrant exercisable by the Investor in its sole and absolute discretion from
time to time within seven (7) years from the date of issuance (the "Warrant") to
purchase an aggregate of 125,000 shares of Common Stock at an exercise price per
share equal to 140% of the average of the closing sale prices of the Common
Stock on the Principal Market for the period from and including January
<PAGE>
21, 1997 to and including January 29, 1997 (the "Warrant Exercise Price"). The
Warrant shall provide that it shall not be exercisable on any date to the extent
that such exercise would limit the ability of the Investor to purchase shares of
Common Stock as a result of a Mandatory Purchase Notice or Additional Purchase
Notice pursuant to Section 2.1(c). The Warrant shall be delivered by the Company
to the Investor upon execution of this Agreement by the parties hereto, and
shall not be exercisable by the Investor for a period of eighteen (18) months
from the date of issuance; provided, however, that if (i) the Company declares a
record date for a material dividend or distribution in respect of the Common
Stock (in cash or securities or other assets, other than Common Stock), (ii) if
at any time (A) there occurs any consolidation or merger of the Company with or
into any other corporation or other entity or person (whether or not the Company
is the surviving corporation) or there occurs any other corporate reorganization
or transaction or series of related transactions, and as a result thereof the
shareholders of the Company pursuant to such merger, consolidation,
reorganization or other transaction own in the aggregate less than 50% of the
voting power and common equity of the ultimate parent corporation or other
transaction (B) the Company transfers all or substantially all of the Company's
assets to another corporation or other entity or person or (iii) the Agreement
is terminated by the Investor pursuant to Section 2.6, the Warrant shall become
immediately exercisable at a price equal to the lesser of (A) the Warrant
Exercise Price or (B) if applicable, 80% of the Transaction Value per share of
Common Stock. The term "Transaction Value per share" means, in the case of a
merger, acquisition, sale of Common Stock, sale of assets, or similar
transaction, the fair market value of the consideration to be received per share
of Common Stock, as evidenced by the average of the closing sale price for the
Common Stock during the ten (10) Trading Days following the announcement of such
definitive agreement and in the case of a material dividend or distribution
(which material dividend or distribution shall not include any grant of any
"poison pill" that does not involve any increase in the consideration payable
thereunder upon redemption of the "poison pill"), the fair market value of the
dividend or distribution per share of Common Stock to be received as determined
in good faith by the Company's Board of Directors; provided that if the dividend
or distribution is in the form of an instrument that trades "when issued" the
fair market value thereof shall be determined by reference to the average of the
closing sale price for such instrument in the when issued market (or in the
absence of a closing sale price, the average of the closing bid and asked price)
during the ten (10) Trading Days following such record date.
(b) (i) The Company shall notify the Investor in writing on or
before April 1, 1999 as to whether it intends to require or does not intend to
require the Investor to purchase Common Stock in excess of the Minimum Offering
Amount through the remainder of the Commitment Period. In the event the Company
fails to make such notification, the Company shall be deemed to have notified
the Investor that it does not intend to require the Investor to purchase Common
Stock in excess of the Minimum Offering Amount through the remainder of the
Commitment Period.
(ii) In the event (A) the Company elects on or before April
1,1999 to issue and sell to the Investor shares of Common Stock by delivery of
Mandatory Purchase Notices and Additional Purchase Notices in excess of the
Minimum Offering Amount, or (B) the Company notifies the Investor on or before
April 1, 1999 that it intends to require the Investor to purchase shares of
Common Stock in excess of the Minimum Offering Amount through the remainder of
the Commitment Period, the Company shall issue to the Investor, as of the date
of occurrence of the event specified in clauses (A) or (B) above, an additional
warrant exercisable from time to time within seven (7) years from the date of
issuance (an "Additional Warrant") to
<PAGE>
purchase an aggregate of 75,000 shares of Common Stock at an exercise price
equal to 140% of the closing sale price on the Principal Market of the Company's
Common Stock on the date the Additional Warrant is issued. The Additional
Warrant shall provide that it shall not be exercisable on any date to the extent
that such exercise would limit the ability of the Investor to purchase shares of
Common Stock as a result of a Mandatory Purchase Notice or Additional Purchase
Notice pursuant to Section 2.1(c). The Additional Warrant shall be exercisable
by the Investor at such time as the Warrant becomes exercisable (provided that
if the Warrant becomes exercisable prior to the issuance of the Additional
Warrant, the Additional Warrant, when issued, shall be immediately exercisable).
(c) The resale by the Investor of Common Stock issuable upon
exercise of the Warrant as well as the Additional Warrant shall be subject to a
registration rights agreement (the "Registration Rights Agreement") entered into
between the Company and the Investor on the date of execution of this Agreement.
Each of the Warrant and the Additional Warrant shall be substantially in the
form of Exhibit A hereto.
ARTICLE III
Conditions to Delivery of Optional Purchase Notices,
Mandatory Purchase Notices, Additional Purchase Notices,
and Conditions to Closing
Section 3.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell Common Stock to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below, which conditions cannot be waived without the prior written consent
of the Company and the Investor.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and as of the date of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing; provided, further,
that the Investor shall have fully performed its obligations to purchase shares
of Common Stock pursuant to Section 2.1 herein with respect to the preceding
Investment Period.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which,
in the reasonable opinion of the Company and its legal counsel, prohibits or
adversely affects any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this Agreement.
<PAGE>
Section 3.2 Conditions Precedent to the Right of the Investor to
Deliver an Optional Purchase Notice an Investor Incremental Purchase Notice, the
Right of the Company to Deliver a Mandatory Purchase Notice or an Additional
Purchase Notice and the Obligation of the Investor to Purchase Common Stock. The
right of the Investor to deliver an Optional Purchase Notice, an Investor
Incremental Purchase Notice, the right of the Company to deliver a Mandatory
Purchase Notice or an Additional Purchase Notice and the obligation of the
Investor hereunder to acquire and pay for Common Stock incident to a Closing is
subject to the satisfaction, on the date of delivery of such Optional Purchase
Notice, Mandatory Purchase Notice or Additional Purchase Notice, as applicable,
and on the applicable Closing Date (each a "Condition Satisfaction Date") of
each of the following conditions, which conditions cannot be waived without the
prior written consent of the Company and the Investor.
(a) Registration of the Common Stock with the SEC. The Company
shall have filed with the SEC a registration statement on Form S-3 (the
"Registration Statement") for the registration of the resale by the Investor of
the Common Stock to be acquired pursuant to this Agreement under the Securities
Act, which Registration Statement shall have been declared effective by the SEC.
Furthermore, the Company shall have filed with the applicable states securities
commissions such blue sky filings as shall have been requested by the Investor,
and any required filings with the NASD or exchange or market where the Common
Stock is traded. No stop order or suspension or withdrawal of the effectiveness
of or with respect to any registration statement or any other suspension of the
use of any registration statement or related prospectus shall have been issued
by the SEC or any states securities commission during the Commitment Period, and
the Company shall be in compliance with the terms of the Registration Rights
Agreement.
(b) Effective Registration Statement. The Registration Statement
shall have previously become effective and shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor the Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so, and (ii) no
other suspension of the use of the Registration Statement or prospectus shall
exist.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company as set forth in this Agreement and
the Registration Rights Agreement shall be true and correct as of each Condition
Satisfaction Date as though made at each such time (except for representations
and warranties specifically made as of a particular date) with respect to all
periods, and as to all events and circumstances occurring or existing to and
including each Condition Satisfaction Date.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits or adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced
<PAGE>
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(f) Adverse Changes. Since September 30,1996 the date through
which the most recent quarterly report of the Company on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, except as disclosed in SEC Documents or as publicly disclosed in
Company press releases subsequent to such date, no event which had or is
reasonably likely to have a Material Adverse Effect has occurred. The Company
has received and delivered to the Investor the waiver of the default by the
Company of the minimum Tangible Net Worth requirement for the quarter ended
December 31,1996 under the Amended and Restated Revolving Credit and Term Loan
Facility, dated as of February 12, 1996, by and among the Company, SWL, Inc.,
General Research Corporation and Mercantile Safe Deposit & Trust Company (the
"Revolving Credit Agreement").
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market.
(h) Legal Opinions and Letters. The Company shall have caused to
be delivered to the Investor, (i) within five (5) Trading Days of the delivery
of the first Mandatory Purchase Notice, (ii) as of a date subsequent to the date
of the Company's filing of any quarterly report on Form 10-Q (or the date by
which such report is required to be filed) after the delivery of the first
Mandatory Purchase Notice, (iii) as of a date subsequent to any date after the
delivery of the first Mandatory Purchase Notice on which the Company announces,
whether on a preliminary or definitive basis, its fourth quarter or full-year
financial results, (iv) to the extent provided by Section 3.3, and (v) as of a
date within five (5) Trading Days of a Mandatory Purchase Notice or an
Additional Purchase Notice, as the case may be, a letter from the Company's
independent counsel containing the statements set forth in Exhibit B addressed
to the Investor stating, inter alia, that in such counsel's belief the
Registration Statement (as may be amended, if applicable), does not contain an
untrue statement of material fact or omits a material fact required to make the
statements contained therein, not misleading or that the underlying prospectus
(if applicable, as so amended or supplemented) does not contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading; provided, however, that in the event that such a letter
cannot be delivered by the Company's independent counsel to the Investor, the
Company shall promptly notify the Investor and promptly revise the Registration
Statement, and the Investor shall not deliver an Optional Purchase Notice, and
the Company shall not deliver a Mandatory Purchase Notice, an Additional
Purchase Notice or, if an Optional Purchase Notice, a Mandatory Purchase Notice
or an Additional Purchase Notice shall have been delivered in good faith without
knowledge by the Investor or the Company that a letter of independent counsel
can not be delivered as required, postpone such Closing Date for a period of up
to five (5) Trading Days until such letter is delivered to the Investor (or such
Closing shall otherwise be canceled). In the event of such a postponement, the
Purchase Price of the Common Stock to be issued at such Closing as determined
pursuant of Section 2.3 shall be the lower of such Purchase Price as calculated
as of the originally scheduled Closing Date or as of the actual Closing Date.
<PAGE>
(i) Accountant's Letter.
(i) The Company shall engage its independent auditors to
perform certain agreed upon procedures in accordance with the provisions of
Statement on Auditing Standards No. 72, as amended, and report thereon as shall
have been reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor, (x) within five (5) Trading Days of the delivery of the first
Mandatory Purchase Notice and (y) within ten (10) Trading Days of the filing
with the SEC of each SEC Document which is deemed to be incorporated by
reference in the Registration Statement and is filed after the delivery of the
first Mandatory Purchase Notice, a report addressed to the Investor.
(ii) In the event that the Investor shall have requested
delivery of an "agreed upon procedures" report pursuant to Section 3.3, the
Company shall engage its independent auditors to perform certain agreed upon
procedures and report thereon as shall have been reasonably requested by the
Investor with respect to certain financial information of the Company and the
Company shall deliver to the Investor a copy of such report addressed to the
Investor. In the event that the report required by this Section 3.2(i) cannot be
delivered by the Company's independent auditors, the Company shall, if
necessary, promptly revise the Registration Statement and the Investor shall not
deliver an Optional Purchase Notice or an Investor Incremental Purchase Notice,
and the Company shall not deliver a Mandatory Purchase Notice or an Additional
Purchase Notice or, if an Optional Purchase Notice, an Investor Incremental
Purchase Notice shall have been delivered in good faith without knowledge by the
Investor that a report of the Company's independent auditors can not be
delivered as required or, if a Mandatory Purchase Notice or an Additional
Purchase Notice shall have been delivered in good faith without knowledge by the
Company that a report of its independent auditors can not be delivered as
required, postpone such Closing Date for a period of up to five (5) Trading Days
until such a report is delivered (or such Closing shall otherwise be canceled).
In the event of such a postponement, the Purchase Price of the Common Stock to
be issued at such Closing as determined pursuant to Section 2.3 shall be the
lower of such Purchase Price as calculated as of the originally scheduled
Closing Date and as of the actual Closing Date.
(j) Officer's Certificate. The Company shall have delivered to
the Investor, on each Closing Date, a certificate in substantially the form and
substance of Exhibit C hereto, executed in either case by an executive officer
of the Company and to the effect that all the conditions to such Closing shall
have been satisfied as at the date of each such certificate.
(k) Due Diligence. No dispute between the Company and the
Investor shall exist pursuant to Section 3.3 as to the adequacy of the
disclosure contained in the Registration Statement.
(l) Beneficial Ownership Limitation. On each Closing Date (i) the
additional shares of Common Stock then to be purchased by the Investor shall not
exceed the number of such shares which, when aggregated with all other shares of
Common Stock then owned by the Investor pursuant to this Agreement and with the
shares of Common Stock beneficially or deemed beneficially owned by the Investor
pursuant to this Agreement, the Warrant and the Additional Warrant (if then
issued and outstanding) ("Warrant Shares") theretofore issued to the Investor
pursuant to Section 2.7, would result in the Investor or any
<PAGE>
affiliate of the Investor beneficially owning more than 4.9% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 13(d) of the Exchange Act and (ii) the Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 3.2. For purposes of clause (i) of this Section 3.2(l), in the
event that the amount of Common Stock outstanding as determined in accordance
with Section 13(d) of the Exchange Act and the regulations promulgated
thereunder is greater on a Closing Date than on the date upon which the Optional
Purchase Notice, Mandatory Purchase Notice, the Additional Purchase Notice or
Investor Incremental Purchase Notice associated with such Closing Date is given,
the amount of Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the when aggregating all purchases of Common
Stock made pursuant to this Agreement and, if any, Warrant Shares, would own
more than 4.9% of the Common Stock following such Closing Date.
Section 3.3 Due Diligence Review. Prior to the delivery of an Optional
Purchase Notice, or after the delivery of a Mandatory Purchase Notice or an
Additional Purchase Notice pursuant to Section 2.5 herein, the Company shall
make available for inspection and review by the Investor, advisors to and
representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
The Company shall not disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement (including an agreement with such advisors and
representatives prohibiting them from trading in Common Stock during such period
of time as they are in possession of non-public information) in form reasonably
satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose non-public
information to the Investor, his advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything
<PAGE>
herein to the contrary, the Company will, as hereinabove provided, immediately
notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 3.3 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement; provided, however, that in no event
shall the Investor's advisors or representatives disclose to the Investor the
nature of the specific event or circumstances constituting any non-public
information discovered by such advisors or representatives in the course of
their due diligence (without the written consent of the Investor prior to
disclosure of such information). The Investor's advisors or representatives
shall make complete disclosure to the Investor's independent counsel of all
events or circumstances constituting non-public information discovered by such
advisors or representatives in the course of their due diligence upon which such
advisors or representatives form the opinion that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in the light of the circumstances in which they
were made, not misleading. Upon receipt of such disclosure, the Investor's
independent counsel shall consult with the Company's independent counsel in
order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Investor as to the accuracy
of the Registration Statement and related prospectus In the event after such
consultation the Investor's independent counsel believes that the Registration
Statement contains an untrue statement or a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading, (a) the Company shall file with the SEC an amendment
to the Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable with copies of the
Registration Statement and related prospectus, as so amended, (b) if the Company
disputes the existence of any such material misstatement or omission, (i) the
Company's independent counsel shall provide the Investor's independent counsel
with a letter stating that nothing has come to their attention that would lead
them to believe that the Registration Statement or the related prospectus, as of
the date of such opinion contains an untrue statement of a material fact or
omits a material fact required to be stated in the Registration Statement or the
related prospectus or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading and (ii) in
the event the dispute relates to the adequacy of financial disclosure and the
Investor shall reasonably request, the Company's independent auditors shall
provide to the Company a letter outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the Company
shall provide the Investor with a copy of such letter, or (c) if the Company
disputes the existence of any such material misstatement or omission, and the
dispute relates to the timing of disclosure of a material event and the
Company's independent counsel is unable to provide the opinion referenced in
clause (b)(i) above to the Investor, then this Agreement shall be suspended for
a period of up to thirty
<PAGE>
(30) days, at the end of which, if the dispute still exists between the
Company's independent counsel and the Investor's independent counsel, the
Company shall either (i) amend the Registration Statement as provided above,
(ii) provide to the Investor the Company's independent counsel opinion and a
copy of the letter of the Company's independent auditors referenced above, or
(iii) the obligation of the Investor to purchase shares of Common Stock pursuant
to this Agreement shall terminate. The Investor hereby agrees to hold harmless
the Company's independent auditors from any liability that may arise out of the
delivery of an "agreed upon procedures" letter pursuant to clause (b)(ii) above.
ARTICLE IV
Representations and Warranties of Investor
The Investor represents and warrants to the Company as follows:
Section 4.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 4.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 4.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.4 No Brokers. The Investor has taken no action which would
give rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby.
Section 4.5 Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 4.6 Organization and Standing. The Investor is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
Section 4.7 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on
<PAGE>
the Investor, or the provision of any indenture, instrument or agreement to
which the Investor is a party or is subject, or by which the Investor or any of
its assets is bound, or conflict with or constitute a material default
thereunder, or result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by the Investor to any third party, or require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which the Investor is subject or to which any of its assets, operations or
management may be subject.
Section 4.8 Disclosure: Access to Information. The Investor has
received all documents, records, books and other information pertaining to the
Investor's investment in the Company that have been requested by the Investor.
The Investor further acknowledges that it understands that the Company is
subject to the periodic reporting requirements of the Exchange Act, and the
Investor has reviewed or received copies of any such reports that have been
requested by it.
Section 4.9 Manner of Sale. At no time was the Investor presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to the Investor as follows:
Section 5.1 Company Status. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of August 26, 1998, the Principal Market is the New York Stock
Exchange, and the Company is eligible to use Form S-3 under the Securities Act.
Section 5.2 Current Public Information. The Company has furnished the
Investor with true and correct copies of all registration statements, reports
and documents, including proxy statements (other than preliminary proxy
statements), filed with the SEC by or with respect to the Company through
November 14,1996. All such registration statements, reports and documents,
together with those registration statements, reports and documents filed
pursuant to the Securities Act or Exchange Act subsequent to the date of this
Agreement (copies of which shall be supplied to the Investor) are collectively
referred to herein as the "SEC Documents".
Section 5.3 No General Solicitation in Regard to this Transaction.
Neither the Company nor any of its affiliates nor any distributor or any person
acting on its or their behalf has conducted any general solicitation (as that
term is used in Rule 502(c) of Regulation D) with respect to any of the Common
Stock, nor have they made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act.
<PAGE>
Section 5.4 Valid Issuance of Common Stock. As of January 21, 1997, (a)
the Company has authorized capitalization consisting of 30,000,000 shares of
Common Stock, par value $.10 per share, (b) the Company has reserved for
issuance to employees, officers, directors or consultants approximately
1,900,000 shares of Common Stock, (c) there are issued and outstanding 9,642,557
shares of Common Stock, of which 300,000 are held in treasury, (d) the Company
has no other outstanding securities convertible into or exchangeable for its
Common Stock or any warrants, options or other rights to subscribe for or
purchase its Common Stock or any such convertible or exchangeable securities
(other than securities under the Company's Compensation Plans and other than the
Company's 5% Convertible Debentures due 2002) other than as described in the
documents filed with the SEC. All of the outstanding shares of Common Stock of
the Company have been duly and validly authorized and issued and are fully paid
and nonassessable, upon issuance of the Common Stock, the Common Stock will be
duly and validly issued, fully paid and nonassessable, and the holders of
outstanding Common Stock of the Company are not and shall not be entitled to
preemptive or other rights afforded by the Company or other rights afforded by
the Company to subscribe for the capital stock or other securities of the
Company as a result of the sale of the Common Stock to the Investor hereunder.
Section 5.5 Organization and Qualification. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company and
each subsidiary, if any, is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
Section 5.6 Authorization: Enforcement. (a) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Common Stock, the Warrant and the Additional Warrant in
accordance with the terms hereof and thereof, (b) the execution, issuance and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required (other than such stockholder
approval as may be required by the standards imposed on companies listed on the
New York Stock Exchange or other Principal Market on which the Common Stock is
traded with respect to issuances by such companies of greater than 20% of such
companies' outstanding voting stock), (c) this Agreement has been duly executed
and delivered by the Company and constitutes valid and binding obligations of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application and
(d) the Common Stock issuable in accordance with the terms of this Agreement or
upon exercise of the Warrant and the Additional Warrant will be duly and validly
issued, fully paid and nonassessable.
Section 5.7 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
<PAGE>
Section 5.8 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
Common Stock, the Warrant and the Additional Warrant do not and will not (a)
result in a violation of the Company's Certificate of Incorporation or By-Laws
or (b) except as otherwise disclosed in Section 5.16 herein, conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (c)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing; provided
that, for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation). The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations which either singly
or in the aggregate do not and will not have a Material Adverse Effect. The
Company is not required under federal, state or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Common Stock or the Warrant and the Additional Warrants in accordance with
the terms hereof (other than any SEC, NASD or state securities filings which may
be required to be made by the Company subsequent to any Closing, and any
registration statement which may be filed pursuant hereto and other than any
shareholder approval required by the rules applicable to companies whose common
stock trades on the New York Stock Exchange or other Principal Market referenced
in Section 5.6); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 5.9 SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information which, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with
<PAGE>
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto or (b) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 5.10 No Material Adverse Change. Since September 30, 1996, the
date through which the most recent quarterly report of the Company on Form 10-Q
has been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company or its subsidiaries, except as disclosed in the SEC Documents or except
as otherwise publicly disclosed in Company press releases.
Section 5.11 No Undisclosed Liabilities. The Company and its
subsidiaries have no liabilities or obligations not disclosed in the SEC
Documents or except as otherwise publicly disclosed in Company press releases,
other than those incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since September 30,1996 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company and upon any of its subsidiaries taken as a whole.
Section 5.12 No Undisclosed Events or Circumstances. Since September
30, 1996, no event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been disclosed in the SEC Documents or
otherwise publicly disclosed in Company press releases.
Section 5.13 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act to
be issued under this Agreement.
Section 5.14 No Brokers. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Investor relating to this Agreement for the transactions
contemplated hereby.
Section 5.15 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect on the Company or
which might materially adversely affect the transactions contemplated by this
Agreement. Except as set forth in the SEC Documents no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which might
result in a Material Adverse Effect on the Company or which might materially
adversely affect the transactions contemplated by this Agreement.
<PAGE>
Section 5.16 No Violation of Covenants. No event of default has
occurred and is continuing (or event which with lapse of time or notice or both
would constitute such an event) which has not otherwise been waived under any of
the revolving credit facilities or under any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument for money borrowed or any other
material agreement to which the Company or any of its subsidiaries is bound, or
to which any of the property or assets of the Company or any of its subsidiaries
is subject. The Company shall have fifteen (15) Trading Days after the end of a
fiscal quarter during which to cure or obtain the waiver of any default that has
occurred and is continuing during an Investment Period with respect to the
minimum Tangible Net Worth covenant under the terms of the Revolving Credit
Agreement, and the Investor hereby acknowledges that the Company shall not be
deemed to be in default under this Agreement for such period of fifteen (15)
Trading Days after the end of a fiscal quarter during which the Company cures
such default or obtains a waiver of such default.
Section 5.17 Effectiveness of SEC Filings. The SEC has not issued any
stop order or other order suspending the effectiveness of any registration
involving the securities of the Company or its subsidiaries.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Registration Rights Agreement
shall remain in full force and effect and the Company shall comply in all
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company will reserve in each Investment Period 750,000 shares of Common Stock,
and the Company shall continue to reserve and keep available at all times in
each Investment Period, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock incident to the Closings in such Investment Period and incident
to the exercise of the Warrant and the Additional Warrant issued hereunder; such
amount of shares of Common Stock to be reserved to be calculated based upon the
minimum Purchase Price therefore under the terms of this Agreement, and assuming
the full exercise of the Warrant and the Additional Warrant. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder and the number of shares so reserved shall be increased to reflect (a)
potential increases in the Common Stock which the Company may thereafter be so
obligated to issue by reason of adjustments to the Purchase Price therefore and
the issuance of the Warrant and each Additional Warrant and (b) stock splits and
stock dividends and distributions.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable to list the additional shares of Common Stock issuable under this
Agreement (including Common Stock issuable upon exercise of the Warrant and the
Additional Warrant); provided, however, that notwithstanding anything else in
this Agreement to the contrary, the Company shall have no obligation to list a
number of shares of Common Stock in excess of 19.9% of the number of shares of
Common Stock outstanding before the listing; provided further, that the
limitations in
<PAGE>
this Section 6.3 on the Company's obligation to list its shares on a Principal
Market shall not affect the Company's obligations under Section 10.4(b). The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Principal Market, it will include in such application the Common
Stock issuable under this Agreement (including Common Stock issuable upon
exercise of the Warrant and the Additional Warrant), and will take such other
action as is necessary or desirable to cause the Common Stock to be listed on
such other Principal Market as promptly as possible. The Investor shall have no
obligation to purchase Common Stock that is not listed on a Principal Market.
The Company shall undertake its best efforts to obtain the shareholder approval
referenced in Section 5.6 required for the issuance of Common Stock under this
Agreement within such time period as shall not at any time preclude the Investor
from providing an Optional Purchase Notice during the Optional Purchase Period,
or the Company from providing a Mandatory Purchase Notice or an Additional
Purchase Notice for the maximum Investment Amount during any Investment Period.
Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Exchange Act. The Company will take
all action to continue the listing and trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and the
Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
issued to the Investor at each Closing and upon the exercise of the Warrant and
the Additional Warrant (and otherwise as provided by Section 7.1) shall be free
of legends or stop transfer or other restrictions.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will furnish to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 "Blackout Period". The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
securities required to be registered under this Agreement or the Registration
Rights Agreement: (a) receipt of any request for additional information by the
SEC or any other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or supplements to the
registration statement or related prospectus; (b) the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of such registrable
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event which makes any
statement made in the registration statement or related prospectus or any
document incorporated or deemed to be
<PAGE>
incorporated therein by reference untrue in any material respect or which
requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of the registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (e) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Investor shall not deliver to the Company any
Optional Purchase Notice, and the Company shall not deliver to the Investor any
Mandatory Purchase Notice or Additional Purchase Notice during the continuation
of any of the foregoing events.
Section 6.9 Rule 153 Prospectus Delivery. The Company shall cause
copies of the prospectus that is part of the Registration Statement to be
delivered to the Principal Market so that the Investor may meet the prospectus
delivery requirements imposed by Section 5(b)(2) of the Securities Act of 1933,
as amended, through compliance by the Company with Rule 153 thereunder.
ARTICLE VII
Legends and Delivery of Certificates, Investor Compliance and Investor Covenants
Section 7.1 Legends and Delivery of Certificates. Each of the Warrant
and the Additional Warrant and, unless otherwise provided below, the Common
Stock will bear the following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
In the event shares of Common Stock are issued incident to a Closing or
upon exercise of the Warrant or the Additional Warrant in circumstances pursuant
to which shares of Common Stock are either required to bear the Legend or are
not to bear the Legend, such certificates (bearing or not bearing the Legend, as
appropriate) shall be issued and delivered to the Investor or as otherwise
directed by the Investor on the applicable Closing Date or within two Trading
Days of the surrender of the Warrant or Additional Warrant for exercise
(together with all other documentation required to be delivered to effect such
exercise), as applicable, in each case against payment therefor.
The Company shall cause the transfer agent for the Common Stock to
issue and deliver to the Investor or as otherwise directed by the Investor,
shares of Common Stock not bearing the
<PAGE>
Legend, during the following periods and under the following circumstances and
without the need for any further advice or instruction or documentation to the
transfer agent by or from the Investor:
(a) At any time from and after the effective date of the
applicable registration statement: (i) incident to any Closing or the issuance
of any shares of Common Stock; (ii) incident to the exercise of the Warrant and
the Additional Warrant; and (iii) upon any surrender of one or more certificates
evidencing Common Stock and which bear the Legend, to the extent accompanied by
a notice requesting the issuance of new certificates free of the Legend to
replace those surrendered; provided that in connection with such event the
Investor confirms to the transfer agent that it intends to sell such Common
Stock to a third party which is not an affiliate of the Company or the Investor,
and the Investor agrees to redeliver such Common Stock to the transfer agent to
add the Legend in the event the Common Stock is not sold; and
(b) At any time from and after the Closing Date, upon any
surrender of one or more certificates evidencing Common Stock and which bear the
Legend, to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered and containing or
also accompanied by representations that (i) the then holder thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the Securities Act,
(ii) such holder intends to effect the sale or other disposition of such Common
Stock whether or not pursuant to the Registration Statement, to a purchaser or
purchasers who will not be subject to the registration requirements of the
Securities Act or (iii) such holder is not then subject to such requirements.
Section 7.2 No Other Legend or Stock Transfer Restrictions. No Legend
has been or shall be placed on the share certificates representing the Common
Stock and no instructions or stop transfers or other restrictions on transfer
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VII.
Section 7.3 Investor's Compliance. Nothing in this Article VII shall
affect in any way the Investor' s obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
Section 7.4 Covenants of the Investor.
(a) The Investor shall not make any offers or sales of the
Common Stock other than pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements
thereof. The Investor will comply with applicable prospectus delivery
requirements under the Securities Act; provided, that the Company complies to
the extent applicable with the mechanics for prospectus delivery set forth in
Rule 153(a) under the Securities Act.
(b) The Investor covenants and agrees that it will not,
directly or through any affiliate (i) create the lowest reported sales price of
the Common Stock on the Principal Market on any Trading Day or (ii) offer to
sell shares of Common Stock at a price lower than the then prevailing bid price
for the Common Stock on the Principal Market.
(c) The Investor shall limit its trading in shares of Common
Stock to trading on the Principal Market for the Common Stock for as long as the
Company maintains the listing
<PAGE>
of its Common Stock on a Principal Market; provided, however, that the Investor
shall not be subject to the foregoing limitation if the Company does not
maintain the listing of its Common Stock on a Principal Market.
(d) The Investor covenants and agrees that it shall not retain
beneficial ownership of shares of Common Stock for the purpose of limiting the
Investor's obligation of purchase shares of Common Stock under this Agreement as
a result of the provisions of Section 2.1(c). The Investor further covenants and
agrees that it shall use its reasonable best efforts to sell shares of Common
Stock to the extent required such that the limitations of Section 2.1(c) shall
not prevent the Investor from acquiring shares of Common Stock pursuant to a
Mandatory Purchase Notice or Additional Purchase Notice.
ARTICLE VIII
Other Issuances of Common Stock
Section 8.1 Equity Offering Adjustment to Purchase Price.
(a) In the event that during the Optional Purchase Period or
during an Investment Period the Company makes an Equity Offering and an Optional
Purchase Notice or a Mandatory Purchase Notice (and Additional Purchase Notice
or Investor Incremental Purchase Notice, if applicable) has been delivered with
respect to the Optional Purchase Period or such Investment Period, then
notwithstanding anything herein to the contrary, the purchase price per share of
Common Stock for any Investment Amount made during the Optional Purchase Period
and such Investment Period prior to the consummation of the Equity Offering
shall be the lower of (a) the lowest effective purchase price per share of
Common Stock received by the Company in any such Equity Offering, and (b) the
price per share of Common Stock determined hereunder with respect to purchases
of Common Stock effected by the Investor (whether pursuant to an Optional
Purchase Notice, a Mandatory Purchase Notice, an Additional Purchase Notice or
an Investor Incremental Purchase Notice) during the Optional Purchase Period or
such Investment Period;
(b) Subsequent to consummation of the Equity Offering, the
Company's obligation to adjust the purchase price per share of Common Stock
pursuant to 8.1(a) during the remainder of the Optional Purchase Period or any
Investment Period shall terminate.
Section 8.2 Other Adjustments to Purchase Price and Floor Price. The
daily low trading price of the Common Stock for any Trading Day used to
calculate the Purchase Price and the Floor Price shall be adjusted
proportionally to reflect any stock splits, stock dividends, reclassifications,
combinations and similar transactions involving the Company's Common Stock.
ARTICLE IX
Choice of Law and Venue, Waiver of Jury Trial
Section 9.1 Choice of Law: Submission to Jurisdiction. THIS AGREEMENT
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF
<PAGE>
LAW. The parties hereby agree that all actions or proceedings arising directly
or indirectly from or in connection with this Agreement shall, at the option of
either party, be litigated only in the United States District Court for the
Southern District of New York located in New York County, New York. The parties
consent to the jurisdiction and venue of the foregoing court and consent that
any process or notice of motion or other application to said court or a judge
thereof may be served inside or outside the State of New York or the Southern
District of New York by registered mail, return receipt requested, directed to
the party for which it is intended at its address set forth in this Agreement
(and service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said court. The parties hereto hereby
irrevocably waive any and all right to a trial by jury with respect to any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
ARTICLE X
Assignment: Entire Agreement, Amendment: Termination
Section 10.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's rights and obligations
under this Agreement may be assigned at any time, in whole or in part, to (x)
any affiliate of the Investor without any prior written consent of the Company
or (y) to any other person or entity, upon the prior written consent of the
Company, which consent shall not to be unreasonably withheld (a "Permitted
Transferee"), and the rights and obligation of the Investor under this Agreement
shall inure to the benefit of, and be enforceable by and against, any such
Permitted Transferee.
Section 10.2 Entire Agreement, Amendment. This Agreement, the
Registration Rights Agreement, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth in this Agreement or therein. Except
as expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
Section 10.3 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its express written consent, unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Except as may be required by law, the Company and the Investor
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement and shall not issue
any such press release or make any such public statement prior to such
consultation.
Section 10.4 Termination.
(a) If any of the events listed in Section 2.6(a)(i) through
(a)(iv) occur and remain uncured for a period of either (x) twenty (20)
consecutive Trading Days or (y) ninety (90) Trading Days in the aggregate in any
365-day period, the Investor may elect, in its sole and
<PAGE>
absolute discretion, to terminate this Agreement. The Investor may also
terminate this Agreement pursuant to the provisions of Section 2.6(b).
(b) In the event this Agreement (x) is terminated by the
Investor pursuant to Section 10.4(a) or Section 2.6(b), (y) is terminated by the
Company other than following a breach by the Investor of any material term or
provision of the Agreement, or (z) expires following the conclusion of the
period described in Section 1.8(d), prior to the Company having issued Common
Stock to the Investor under this Agreement for an aggregate Purchase Price at
least equal to the Minimum Offering Amount, the Company shall pay to the
Investor, within thirty (30) days of such termination, as liquidated damages an
amount in cash equal to $300,000 multiplied by a fraction the numerator of which
is equal to the difference between the Minimum Offering Amount and the aggregate
Purchase Price of Common Stock purchased under this Agreement prior to
termination and the denominator of which shall be the Minimum Offering Amount.
In the event the Investor shall have purchased Common Stock for an aggregate
Purchase Price of at least the Minimum Offering Amount prior to the date of
termination, the Investor shall not be entitled to any damages or other remedies
under this Section 10.4(b).
(c) On or before April 1, 1999, the Company may, in its sole
discretion and without being subject to the provisions of Section 10.4(b)
hereof, terminate the Investor's obligation to purchase any Investment Amount
for the remainder of the Commitment Period, provided, however, that the Company
shall have sold to the Investor the Minimum Offering Amount.
ARTICLE XI
Notices. Etc.; Cost and Expenses; Indemnification
Section 11.1 Notices. Etc. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (a) if to the
Company, to: GRC International, Inc., 1900 Gallows Road, Vienna, VA 22182;
Attention: Chief Financial Officer and General Counsel, Facsimile No.: (703)
448-6890, with copies (which shall not constitute notice) to: Arnold & Porter,
555 12th St. N.W., Washington, D.C. 20004; Attention: Steven L. Kaplan, Esq. and
Richard E. Baltz, Esq., Facsimile No.: (202) 942-5999; and (b) if to the
Investor, to Cripple Creek Securities, LLC, 40 West 57th St., 15th Fl., New
York, N.Y. 10019; Attention: Robert L. Chender, Esq., Facsimile No.: (212)
698-0554. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery
of such notice by a reputable air courier service.
Section 11.2 Cost and Expenses. The Company shall be responsible for
the Investor's reasonable, actual and allocable costs and expenses (including
legal fees) incurred in entering into this Agreement in an amount not exceeding
$45,000, which amounts shall be paid within forty-five (45) days of the
Company's receipt of the applicable invoice or invoices as well as the
<PAGE>
Investor's reasonable, actual and allocable costs and expenses (including legal
fees) incurred in connection with the performance of its initial due diligence
activities relating to the effectiveness of the Registration Statement in an
amount of up to $25,000. The Company shall also be responsible for any
reasonable, actual and allocable subsequent costs and expenses incurred by the
Investor in connection with matters set forth in Section 3.3 (including without
limitation legal fees and fees of advisors and representatives of the Investor)
in an amount not exceeding $7,500 with respect to the Optional Purchase Period
and each Investment Period, which amounts may be netted by the Investor against
the amount of any payment relating to the issuance of shares of Common Stock to
the Investor in connection with any Closing. In the event that with respect to
the conduct by the Investor of its due diligence activities in connection with
the effectiveness of the Registration Statement, the Optional Purchase Period or
any Investment Period, it incurs reasonable, actual and allocable costs and
expenses in excess of the amount for which the Company is responsible to
reimburse it, up to $5,000 of such excess costs and expenses may be carried
forward to be reimbursed by the Company (within the limitation set forth above)
in connection with the Optional Purchase Period, the first Investment Period or
the immediately succeeding Investment Period, as applicable.
Section 11.3 Securities Law Indemnification.
(a) Indemnification of Investor. The Company agrees to indemnify
and hold harmless the Investor and each person, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement of a
material fact or any alleged untrue statement of material fact contained in the
Registration Statement (or any amendment thereto), including any prospectus, or
in any offering circular or other document, as applicable, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statement therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), or in any offering circular
or other document, as applicable, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, based upon any such untrue statement or omission,
or any such alleged untrue statement or omission; provided that (subject to
Section 11.3(d) below) any such settlement is effected with the written consent
of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the Investor),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in
<PAGE>
reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use in the Registration Statement (or any
amendment thereto), including any prospectus (or any amendment or supplement
thereto), or in any offering circular or other document, as applicable.
(b) Indemnification of Company. The Investor agrees to
indemnify and hold harmless the Company its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including any prospectus (or any amendment or supplement
thereto), or in any offering circular or other document, as applicable, in
reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use in the Registration Statement (or any
amendment or supplement thereto) or in any offering circular or other document,
as applicable.
(c) Action against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of his indemnity agreement. In the case of parties indemnified pursuant
to Section 11.3(a) above, counsel to the indemnified parties shall be selected
by the Investor, and in the case of parties indemnified pursuant to Section
11.3(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the defense
of any such action; provided, however, that counsel to the indemnifying party
shall not (except with he consent of the indemnified party) also be counsel to
the indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnifies parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry or any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section or Section 11.4 hereof (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnifies part form all
liability arising out of such litigation, investigation proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of an any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for the fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 11.3(a)(ii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received
<PAGE>
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
Section 11.4 Contribution. If the indemnification provided for in
Section 11.3 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to herein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred (a) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Investor on the other hand from the offering of
the Common Stock pursuant to this Agreement or (b) if the allocation provided by
clause (a) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (a)
above but also the relative fault of the Company on the one hand and of the
Investor on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Investor on the other hand in connection with the offering of the Common Stock
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total proceeds from the offering of the Common Stock pursuant
to this Agreement received by the Company from the Investor and the total
proceeds received by the Investor upon the sale of such Common Stock bear to the
aggregate public offering price.
The relative fault of the Company on the one hand and the Investor on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Investor and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.4 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.4.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.4
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.4, the Investor shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock purchased by it and resold to the public
exceeds the amount of any damages which the Investor has otherwise been required
to pay by reason of any such untrue or alleged untrue statement or omission or
alleged omission.
<PAGE>
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 11.4, each person, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Investor, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
Section 11.5 General Indemnification. Each party shall indemnify the
other against any loss, cost or damages (including reasonable attorney's fees
and expenses) incurred as a result of such parties' breach of any
representation, warranty, covenant or agreement in this Agreement.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts. This Agreement may be executed in any number
of counterparts, all of which together shall constitute one instrument.
Section 12.2 Survival: Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall remain operative and in full force and effect regardless
of (a) any termination of this Agreement or of the Commitment Period, (b) any
investigation made by or on behalf of any indemnified party or by or on behalf
of the Company, and (c) the consummation of the sale or successive resales of
the Common Stock. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.3 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.4 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg or any other reputable pricing service chosen by the Investor
and reasonably acceptable to the Company.
Section 12.5 Effectiveness of the Agreement. This Agreement shall be
effective as of the Effective Date provided the Company shall have delivered on
such date fully executed versions of the Warrant, the opinion(s) of counsel and
the Registration Rights Agreement and any other documents required to be
delivered pursuant to the terms of this Agreement and shall have agreed by such
date to the final form of Exhibits to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
CRIPPLE CREEK SECURITIES, LLC GRC INTERNATIONAL, INC.
By: By:
--------------------------------- --------------------------------
Name: Name:
Title: Title:
<TABLE>
<CAPTION>
GRC International, Inc.
Statement of Computation of Earnings Per Share
(in thousands except for per share amounts)
QTR ENDING YTD ENDING
06/30/98 06/30/97 06/30/98 06/30/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
BASIC
Weighted Average Number of Shares of Common
Stock Outstanding 10,140 9,359 9,838 9,338
Income (Loss) from Continuing Operations 3,991 3,451 10,702 13,861
Income (Loss) from Discontinuing Operations (31,611)
- - 758
======================== ========================
Net Income (Loss) 3,991 3,451 11,460 (17,750)
======================== ========================
Per Share Amount:
Income (Loss) from Continuing Operations
0.39 0.37 1.09 1.48
Income (Loss) from Discontinuing Operations
- - 0.08 (3.39)
======================== ========================
Net Income (Loss)
0.39 0.37 1.17 (1.90)
======================== ========================
FULLY DILUTED
Weighted Average Number of Shares of Common
Stock Outstanding 10,140 9,359 9,838 9,338
Net Effect of Dilutive Stock Options
Based on the Treasury Stock Method
Using Average Market Price 176
245 63 146
Net Effect of Convertible Debenture
Based on the
if Converted Method (ONLY IF DILUTIVE) 329
- 741 270
======================== ========================
Weighted Average Shares Outstanding 10,386 10,163 10,254 9,843
======================== ========================
Income (Loss) from Continuing Operations 3,991 3,451 10,702 13,861
Interest and Amortization on 425
- 357 184
Convertible Debenture (ONLY IF DILUTIVE)
Adjusted Income (Loss) from Continuing Operations 3,991 3,808 10,886 14,286
Income (Loss) from Discontinuing Operations (31,611)
- - 758
======================== ========================
Adjusted Net Income (Loss) 3,991 3,808 11,644 (17,325)
======================== ========================
Per Share Amount:
Adjusted Income (Loss) from Continuing Operations
0.38 0.37 1.06 1.45
Income (Loss) from Discontinuing Operations
- - 0.07 (3.21)
======================== ========================
Adjusted Net Income (Loss)
0.38 0.37 1.13 (1.76)
======================== ========================
</TABLE>
SUBSIDIARIES OF REGISTRANT
As of June 30, 1998, the Registrant had no significant active subsidiaries.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 3,648
<SECURITIES> 0
<RECEIVABLES> 28,702
<ALLOWANCES> 41
<INVENTORY> 17
<CURRENT-ASSETS> 39,157
<PP&E> 20,638
<DEPRECIATION> 11,069
<TOTAL-ASSETS> 71,263
<CURRENT-LIABILITIES> 20,381
<BONDS> 0
0
0
<COMMON> 1,051
<OTHER-SE> 26,309
<TOTAL-LIABILITY-AND-EQUITY> 71,263
<SALES> 130,927
<TOTAL-REVENUES> 130,927
<CGS> 110,477
<TOTAL-COSTS> 110,477
<OTHER-EXPENSES> 15,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,866)
<INCOME-PRETAX> 3,536
<INCOME-TAX> 7,166
<INCOME-CONTINUING> 10,702
<DISCONTINUED> 758
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,460
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.13
</TABLE>
