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, 1999
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 August 27, 1999, the aggregate market value of the Registrant's
voting common stock held by non-affiliates was $75,463,623. As of August 27,
1999, there were 10,308,626 shares of the Registrant's $.10 par value common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Corporation's 1999 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 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 38
PART III.
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management 38
Item 13. Certain Relationships and Related Transactions 39
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
Signatures 40
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In addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements as defined in Section 21E of the Securities Exchange
Act of 1934. 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 "Forward Looking Statements" section of "Management's Discussion and
Analysis". The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by
the Company subsequent to this Annual Report on Form 10-K and any Current
Reports on Form 8-K filed by the Company.
PART I
ITEM 1. BUSINESS
--------
General
GRC International, Inc. (the "Company") was organized in California in
1961. Since 1974, the Company has been a Delaware corporation. The Company is
headquartered in Vienna, Virginia.
Acquisition of Management Consulting and Research, Inc.
-------------------------------------------------------
The Company has a strategy to grow its business through selective
acquisitions of businesses to complement its internal growth. Generally, the
Company expects to acquire businesses which are closely aligned with its current
base of business in professional services. In pursuit of the strategy the
Company, on September 2, 1999, acquired all of the outstanding stock of
Management Consulting and Research, Inc. (MCR). MCR is a company that generates
approximately $30 million in annual revenues in professional services to the
U.S. Government. MCR provides budget analysis, cost estimating and program
management services primarily to the U.S. Government, with its largest customer
being the U.S. Air Force. MCR has been in business for 22 years and currently
employs 270 people. MCR will be operated as a wholly owned subsidiary of the
Company from the date of acquisition.
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 January 1998, the Company had sold the
businesses comprising those Divisions.
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Description of the Business
---------------------------
The Company provides a broad range of professional services to the
U.S. Government (96% of revenues) and information technology services to
commercial clients (4% of revenues). The Company's U.S. Government business is
primarily with the Department of Defense ("DoD") and its instrumentalities.
Approximately 17% of the business is performed under classified contracts which
require special security clearances of employees.
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 U.S.
Government, but has recently expanded those service offerings to commercial
clients. Commercial sales now represent about 4% of total Company revenues. For
further financial information regarding these business segments see Note 12 to
the consolidated Financial Statements.
The areas of expertise encompassed by these services include: software
and system engineering; business decision support systems; analytical modeling
and simulation; database design and implementation; legacy migration
engineering; network design and integration; systems integration; post
deployment software support; operational support and management; virtual
manufacturing consulting; communications engineering; and test and evaluation;
among others.
These services are applied to such areas as: financial and personnel
management; automated acquisition systems; transportation planning and analysis;
manufacturing analysis; logistics planning; security clearance processing;
WAN/LAN analysis; training systems; as well as information warfare systems
relying on radar, optics, communication networks, electronics, navigation and
guidance, control, space, and surveillance systems.
As a professional service provider, the Company's revenues are
critically dependent upon the number and skill level of its employees. The
Company's ability to meet planned and expected revenue levels is a function,
among other things, of its ability to staff open positions with the personnel
required to satisfy its contractual backlog.
In 1997, the Company won a systems integration contract to modernize
the U.S. Army's retail logistics system. The contract is currently in the
development phase, which is expected to last approximately three more years at
which time additional operations and maintenance support efforts may be
available to the Company. This project is the largest source of revenue to the
Company generating revenues of $27.4 million in 1999, or 16% of total revenues.
No other individual project represents more that 10% of the Company's revenues.
For its commercial customers the Company performs information
technology consulting services of a similar nature to those services supplied to
its U.S. Government clients in software and website development, systems
integration and independent system testing. Most of the commercial business is
conducted under contracts with fixed hourly
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billing rates. The skill requirements for the business are similar to those used
in the Government business, except that in the commercial business the Company
relies more heavily on temporary contract labor. Clients of this business
include the National Association of Securities Dealers, the George Washington
University and Lucent Technologies.
Contracts
---------
Government contract revenues from professional and technical services,
either as prime contractor or subcontractor, represented approximately 96%, 98%,
and 95% of the Company's total revenues for fiscal years ended June 30, 1999,
1998, and 1997, 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 fixed in amount 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. The
Company has also received significant orders that are of the fixed price level
of effort type. This contract type most closely resembles the time and materials
contract in that it often calls for delivery of specified hours of various labor
categories, rather than project completion which is typical of fixed price
contracts. For fiscal years 1999, 1998, and 1997, approximately 34%, 49%, and
60%, respectively, of the Company's professional and technical services revenues
were from cost reimbursable contracts, while approximately 66%, 51%, and 40%,
respectively, were fixed price or time and materials type contracts, with fixed
price delivery contracts 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.
Contracts are often awarded for periods of more than one year, with
five years being a common period of performance for a contract. Usually work on
the contracts is funded for periods of one year or less.
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At June 30, 1999, the Company had a total contract backlog amounting to
$569 million, compared to $450 million at June 30, 1998. For this purpose, total
contract backlog reflects an estimate of the amount of revenues that the Company
expects to generate on each contract. This estimate generally assumes that all
government contract options for services in succeeding years will be exercised
and funded. The estimate of future revenues included in total backlog is
inherently subject to significant risk of error due to a number of factors
including the continuation and funding of current programs, changes in the
clients needs and the Company's ability to fill those needs. Funded contract
backlog at June 30, 1999, amounted to $68 million, compared to $58 million at
June 30, 1998. Funded contract backlog represents the portion of total contract
backlog for which contract awards have been made and funded. Most of the funded
contract backlog is deliverable within the next year as well as a portion of the
unfunded backlog included in total contract backlog.
Marketing and Competition
-------------------------
Competition for professional services business with the U.S. Government
is fierce. Companies compete on the basis of technical skills, management, past
performance and price. Prior experience with a client and functional knowledge
of his work requirements are critical factors in many awards. Many of the
Company's services develop into long-term relationships with clients that can
span a period of ten years or more. In the Company's classified business areas,
these client relationships, and the security clearances which are required to
perform the work, are particularly important in the competition for follow-on
business.
The Company markets it professional services along several fronts. The
Company is able to secure a substantial portion of its revenues through
follow-on task orders from existing clients, based primarily on the quality of
current work performed, with little or no direct competition after the initial
contract is awarded. This requires a continual focus on high quality service to
clients and attention by the Company's line management to secure follow-on
tasks. In addition, the Company maintains a central business development
activity to identify, track and bid on larger competitive contracts that
represent the primary source of growth to the Company. There is significant
competition for these contracts, with emphasis on the quality of the proposed
technical solution, past performance and price. The effort to prepare for and
bid these programs often spans a year or more, and may cost hundreds of
thousands of dollars to pursue an individual opportunity.
In recent years the U.S. Government has used a number of different
types of contract vehicles to procure professional services. Specifically,
government-wide contract vehicles have been awarded which allow contractors to
sell services to a wide range of customers. The use of these contract vehicles
has introduced a requirement to market at two levels; first to compete for and
win the contract and second to bid and win task orders under the contract. The
effect of the use of these contract vehicles has been to open up more new
customers to the Company, but at the expense of increased marketing costs. The
contract vehicle used most by the Company is the Federal Supply Services
contract
6
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(the GSA Schedule) which is used to perform work with a number of clients. The
previously discussed GCSS Army project is performed under a Basic Purchasing
Agreement (BPA) on the GSA Schedule. Total revenues generated from task orders
under this contract vehicle in 1999 were $62.8 million.
It is a challenge to the Company to continually modify its marketing
approach to meet the changing procurement environment in its U.S. Government
marketplace.
The Company encounters substantial competition in the professional and
technical service 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.
The field of competitors is a complex one in which any company may be viewed as
a competitor, customer or teammate on any one opportunity. Some of the larger
competitors are Lockheed Martin, Litton Industries, TRW, Computer Sciences,
SAIC, Nichols Research and CACI. There are also many smaller competitors in the
market place, most of them privately-owned.
Seasonality of the Business
---------------------------
The Company's business does not have strong seasonal trends, though
revenues are generally lower during the first six months of the fiscal year
(July 1-December 31) due to the concentration of holidays and vacation time
which reduce the available direct contract labor of the Company's workforce.
Revenues can also change significantly period-to-period as a result of the
start-up or wind-down of significant contracts.
Research and Development
------------------------
The Company's business is not heavily dependent on expenditures for
research and development. Company-sponsored research and development costs were
$220,000, $308,000 and $476,000 in 1999, 1998 and 1997, respectively.
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.
Employees
---------
As of June 30, 1999, the Company employed 1,109 people. Effective with
the acquisition of MCR on September 2, 1999 the Company added approximately 270
more employees. None of the Company's employees are under collective bargaining
agreements.
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ITEM 2. PROPERTIES
----------
All of the Company's operations are conducted in leased facilities. The
Company has approximately 32 offices in leased facilities within the United
States comprising approximately 319 thousand square feet. The minimum annual
rentals under non-cancelable operating leases are approximately $6.8 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 in 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 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
----------------------------------------------------------------
MATTERS
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Stock Prices and Dividends
--------------------------
The Company's common stock is traded on the New York and Pacific Stock
Exchanges. As of September 3, 1999, there were 1,250 holders of record of the
Company's common stock. Stock price information by quarter is presented in the
following table:
Fiscal Year
Market ---------------------------------------------
Price 1999 1998
-------- ------------------- -----------------
High Low High Low
---- --- ---- ---
1st Quarter 11.38 4.63 8.13 4.94
2nd Quarter 7.50 3.88 8.38 5.13
3rd Quarter 8.19 5.94 7.00 5.56
4th Quarter 8.50 6.50 11.25 4.94
On September 3, 1999, the closing price of the Company's common stock
was $9.31.
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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 8 to the Consolidated Financial Statements for a discussion
of the Company's Shareholder Rights Plan under which a dividend of one common
stock purchase right is automatically issued for each share of the Company's
common stock.
Recent Sales of Unregistered Securities
- ---------------------------------------
During May and June 1997, the Company issued a total of 5,008 shares of
common stock to The Parsons Consulting Group, Inc. ("TPCG") in fulfillment of a
contractual obligation to compensate TPCG for services rendered to the Company.
The offering was exempt from registration under Section 4(2) of the Securities
Act as a transaction by an issuer not involving any public offering.
On September 2, 1999, the Company completed its acquisition of
Management Consulting & Research, Inc. ("MCR"). As part of the purchase price
the Company issued 2,000,000 shares of common stock to Dr. Gerald R. McNichols,
principal shareholder of MCR. The offering was exempt from registration under
Section 4(2) of the Securities Act as a transaction by an issuer not involving
any public offering.
From July 1, 1999 through September 24, 1999, the Company contributed
9,339 shares of Common Stock to participants in its 401(k) profit sharing plan.
The offering was not subject to registration under the Securities Act because it
did not involve an offer or sale of a security.
9
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ITEM 6. SELECTED FINANCIAL DATA
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FOR THE YEAR ENDED JUNE 30, .................................. 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except for per share data)
Revenue ...................................................... $ 164,602 $ 130,927 $ 117,599 $ 117,016 $ 132,812
Operating income (loss) ...................................... 9,258 5,402 4,622 (182) 6,800
Interest income (expense), net ............................... (1,215) (1,866) (1,343) (518) 270
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before taxes ........ 8,043 3,536 3,279 (700) 7,070
Income tax benefit ........................................... --------- --------- --------- --------- ---------
Income (loss) from continuing operations ..................... 8,906 10,702 13,861 (700) 7,070
Gain (loss) from discontinued operations ..................... 225 758 (31,611) (16,937) (2,040)
$ 9,131 $ 11,460 $ (17,750) $ (17,637) $ 5,030
========= ========= ========= ========= =========
Basic income (loss) per share from continuing operations ..... $ 0.87 $ 1.09 $ 1.48 $ (0.08) $ 0.79
Basic income (loss) per common share ......................... $ 0.89 $ 1.17 $ (1.91) $ (1.92) $ 0.56
Weighted average number of common shares ..................... 10,230 9,838 9,338 9,172 9,001
Diluted income (loss) per share from continuing operations ... $ 0.85 $ 1.07 $ 1.45 $ (0.08) $ 0.75
Diluted income (loss) per common share ....................... $ 0.87 $ 1.14 $ (1.76) $ (1.92) $ 0.53
Weighted average number of common shares and equivalents ..... 10,498 10,254 9,843 9,172 9,393
Working capital (excluding discontinued operations) .......... $ 25,267 $ 19,073 $ 20,459 $ 14,857 $ 19,688
Net assets (liabilities) of discontinued operations .......... $ (185) $ (297) $ (4,591) $ 14,742 $ 9,975
Total assets ................................................. $ 76,081 $ 71,263 $ 65,964 $ 67,070 $ 71,107
Long-term debt (less current maturities) ..................... $ 12,623 $ 23,264 $ 28,153 $ 16,527 $ --
Stockholders' equity ......................................... $ 40,059 $ 27,360 $ 13,076 $ 28,675 $ 48,268
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
---------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
Summary
-------
The following analysis and discussion are intended to provide
additional information and provide the reader a better understanding of the
information presented in the Company's Financial Statements and Notes, and
should be read in conjunction with them. All years refer to the Company's fiscal
year, which ends on June 30.
Revenues
--------
Revenues in 1999 of $164.6 million were $33.7 million, or 26%, above
1998 revenues of $130.9 million. 1998 revenues were $12.9 million, or 11%, above
revenues in 1997 of $117.6 million. The largest contributor to revenue growth
over the three-year period was the GCSS Army contract, a systems integration
project to modernize the Army's retail logistics systems. This project generated
revenues of $27.4 million, $10.7 million and $1.3 million in 1999, 1998 and 1997
respectively. The Company's commercial information technology service business,
started in 1998, grew to $7.3 million in 1999 compared to $2.2 million in 1998.
Revenues in 1999 also grew as a result of increased demand for the Company's
information technology and engineering services from the U.S.
Government.
The following table sets forth for the periods indicated the percentage
that certain items of income and expense bear to revenues.
1999 1998 1997
---- ---- ----
Revenues 100.0% 100.0% 100.0%
Cost of revenues 84.3% 84.4% 81.8%
Indirect and other costs 10.1% 11.5% 14.3%
----- ----- -----
Operating income 5.6% 4.1% 3.9%
Interest expense, net 0.7% 1.4% 1.1%
---- ---- ----
Income from continuing operations
before income tax benefits 4.9% 2.7% 2.8%
Income tax benefit 0.5% 5.5% 9.0%
---- ---- ----
Income from continuing operations 5.4% 8.2% 11.8%
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Cost of Revenues
----------------
The cost of revenues, which includes direct labor and related fringe
benefits, the management cost of operations, and other direct contract costs
such as subcontract costs, travel and equipment purchases, generally followed
the growth in demand for the Company's services over the past three years. Cost
of revenues as a percent of revenues rose significantly in 1999 and 1998
compared to 1997 due to the increase in the use of subcontractors to perform on
contracts.
Indirect and Other Costs
------------------------
Indirect and other costs consist of selling, general and
administrative, research and development and other costs. These expenses fell by
11% from $16.9 million in 1997 to $15.0 million in 1998 as a result of
management efforts to reduce administrative expenses after the Company exited
some commercial products businesses and focused on its core government
professional services business. From 1998 to 1999 these expenses grew by 10% to
$16.6 million, but the rate of growth in costs was kept well below the 26%
growth rate in revenues as the Company continued to improve operating
efficiencies by controlling administrative costs. The increase in cost in 1999
was primarily from staff salary increases and a non-recurring expense of
$300,000 to terminate the Company's Structured Equity Financing Line and
$130,000 related to the termination of the board of directors retirement plan.
These efforts to reduce administrative expenses have resulted in a significant
decline in indirect and other costs as a percent of revenues over this period
from 14.3% in 1997 to 10.1% in 1999.
Operating Income
----------------
Operating income has grown over the past three years at a faster pace
than revenues. The operating margins have increased from 3.9% in 1997 to 4.1% in
1998 to 5.6% in 1999. The most important source of improvement in operating
margins has been the reduction in indirect and other costs discussed above. The
cost reductions increasingly have had the effect of improving the Company's
margins as the proportion of the Company's business under cost reimbursable
contracts has fallen, from 60% in 1997 to 49% in 1998 to 34% in 1999. The cost
controls and improved project management have had the effect of significantly
improving margins in a contracting environment which now is dominated by fixed
labor rate pricing (fixed price and time and materials type contracts). The
declining proportion of cost reimbursable contracts has allowed the Company to
retain more of the benefits of its performance improvement efforts. The
commercial IT services business, while still only 4% of revenues, has also
helped to boost operating margins with operating income contributions of $1.6
million in 1999 compared to $.2 million in 1998. Included in operating income of
the commercial IT services business in 1999 is $380,000 of royalty income.
Net Interest Expense
--------------------
Interest expense is incurred primarily on the Company's bank
borrowings, which have recently been at the prime bank interest rate. Net
interest expense fell to $1.2 million in 1999 from $1.9 million in 1998 as a
result of a reduction in borrowings stemming from positive operating cash flows
in 1999. The increase in 1998 interest from the $1.3 million
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level in 1997 reflects the increase in debt incurred in late 1997 in order to
fund what are now discontinued operations. In each of the three years the
interest expense was offset by approximately $.2 million of interest income on a
note receivable which was collected at the end of 1999.
Income Tax Benefit
------------------
As a result of losses incurred in discontinued operations, the Company
has substantial tax net operating loss carryforrwards. Starting in 1997, the
Company began recognizing the value of these tax loss carryforwards when it
became more likely than not that they would be realized by offsetting taxable
income in future years. By the end of 1999 the Company had fully recognized the
value of these loss carryforwards resulting in a net income tax benefit in the
income statement of $.9 million, $7.2 million and $10.6 million in 1999, 1998
and 1997, respectively. With the full recognition of the tax loss carryforwards,
the Company has begun reporting a more normal tax provision against income of
approximately 38.5%, starting in the third quarter of 1999. The benefit of the
tax loss carryforwards has been reflected in the $22.3 million deferred tax
asset on the balance sheet at the end of 1999.
Income (Loss) From Discontinued Operations
------------------------------------------
The loss from discontinued operations of $31.6 million in 1997 reflects
the results of the Company's plan in February 1997 to dispose of two of its
business units, its Telecommunications and Advanced Products Divisions. The 1997
loss included a substantial write down of capitalized software. The 1998 gain on
discontinued operations of $.8 million reflects the sale of NetworkVUE, the last
remaining business, and adjustments of estimated remaining liabilities related
to such business. The $.2 million gain in 1999 resulted from residual royalties
received on products of the discontinued businesses.
Effects of Inflation
--------------------
Approximately 34% of the Company's business is conducted under cost
reimbursable contracts with the U.S. Government which automatically adjust to
cover increased costs as a result of inflation. Most of the remainder of the
Company's business is on fixed labor hour and fixed price contracts that are
priced with labor rates that reflect an estimate of the effects of inflation.
Inflation has not been a significant factor in the result of operations of the
Company.
Liquidity and Capital Resources
-------------------------------
In 1999 the Company generated $8.2 million of cash flow from
operations, up from $5.6 million in 1998 and $5.7 million in 1997. The increase
came from improved operating income and the continuing deferral of tax liability
due to the existence of tax operating loss carryforwards. Discontinued
operations used only a small amount of cash in 1999 as the disposal of
discontinued businesses is substantially complete. Acquisitions of property and
equipment were $2.2 million in 1999, close to the three-year average of $2.5
million. Acquisitions were primarily for computer and network equipment to
modernize and support
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the Company's growth. 1999 cash flow was also augmented by the collection of a
$2 million note receivable. The cash flows resulted in a reduction in
outstanding debt of $11.6 million. Outstanding debt at the end of 1999 was $12.6
million.
On August 27, 1999, subsequent to the fiscal year end, the Company
replaced its revolving credit and term loan with a new, 2-year revolving line of
credit with a total borrowing capacity of $35 million. The line of credit can be
used for working capital, acquisitions and for any surge in working capital
requirements from a slow down in customer payments which might arise as a result
of Year 2000 computer problems.
The Company believes that its cash flow from operations, particularly
with the availability of tax operating loss carryforwards to offset future tax
liabilities, and its line of credit are sufficient to meet its financing needs.
Acquisition of Management Consulting and Research, Inc.
-------------------------------------------------------
Effective September 2, 1999, the Company acquired all of the
outstanding stock of Management Consulting and Research, Inc. (MCR). The net
purchase price of approximately $23 million was paid with 2 million shares of
GRCI's common stock valued at approximately $16 million and the remainder of
approximately $7 million in net cash, financed through the new credit agreement.
MCR provides professional services to the U.S. Government primarily in the areas
of budget analysis, cost estimating and program management. MCR's revenues are
approximately $30 million per year. The acquisition will be accounted for using
the purchase method of accounting and will be consolidated with GRC from the
date of acquisition.
Forward Looking Statements
--------------------------
This filing may contain "forward-looking" statements which are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Factors which
could cause a material difference in results include, but are not limited to,
the following: significant changes in economic conditions or in national
priorities which result in changes in demands by the U.S. Government for the
Company's services; changes in government laws and regulations; changes in the
procurement practices of the U.S. Government which could negatively effect the
Company's ability to compete, or its profitability; the risk of termination of
any individual contract or the inability of the Company to capture the value in
its backlog because of failure of a customer to continue funding of a project;
the ability of the Company to fully staff to meet its contract requirements at
salary levels sufficient to maintain profitability; the uncertainties discussed
more fully in the section entitled "Year 2000 Issue"; and the ability of the
Company to generate sufficient taxable income in the future to fully capture the
benefit of its tax net operating loss carryforwards that are reflected in the
Company's deferred tax assets.
14
<PAGE>
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",
and 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, cash flows 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 force consists of existing employees
of the Company, and no new employees have been hired specifically to address the
Company's internal Y2K issues.
Since 1998, the Company has been 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 most of its business-critical
computer systems which were not Y2K-compliant have been replaced, upgraded or
modified.
The Company's financial accounting software system was built in the
1980's on a commercial database platform by Company employees. The Company has
modified this system to be Y2K compliant. The system has also been tested for
Y2K compliance by the vendor of the platform on which the system resides, and
the vendor has concluded that the Y2K compliance risks associated with the
system are insignificant.
The Company's management systems, such as human resources/payroll,
purchasing, and classified document control, are separate off-the-shelf
commercial systems, which are certified as Y2K compliant by the vendors of the
systems. The Company has also completed certain internal testing of the Y2K
compliance of these systems.
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 U.S. Government, there can
be no guarantee that such systems that are not now Y2K compliant will be timely
converted to Y2K compliance.
15
<PAGE>
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
assessment is almost complete with no indication of material liability or
exposure.
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
reimbursable 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 U.S. 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 U.S. Government, the failure of the U.S.
Government to achieve Y2K compliance by the year 2000 could have a significant
adverse effect on GRCI's business, financial position, results of operations and
cash flows.
The Company has completed its Y2K contingency plan. The Company expects
to modify this plan periodically prior to January 1, 2000 as additional
information is received. The Company believes there are two significant areas of
potential risk to its financial position as a result of the Y2K issue. The first
significant area of risk is the result of the Company's dependence on the
ability of the U.S. Government to meet its obligation to pay all invoices in a
timely manner. The Company has in place a revolving credit line which currently
has approximately $15 million of additional borrowing capacity that is available
to cover the effect on working capital requirements of delays that may occur in
the processing of payments by U.S. Government paying offices. The Company
believes the borrowing capacity to be sufficient, but the interest cost related
to such payment delays would adversely effect the Company's earnings. The second
significant area of risk is the delivery of public utilities to its facilities.
The Company has developed plans to accommodate minor interruptions in these
services, but will be unable to avoid negative financial impact should such
interruptions be extensive.
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.
16
<PAGE>
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of June 30, 1999,
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.
<TABLE>
<CAPTION>
Financial Instruments by Expected Maturity Date
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
There- Fair
2000 2001 2002 2003 2004 after Total Value
------------------------------------------------------------------------------------
Liabilities
Long-term debt:
Variable rate --- $12,623 --- --- --- --- $12,623 $12,623
Average interest
Rate 7.0% 7.0% --- --- --- ---
</TABLE>
ITEM 8. FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
<S> <C>
Independent Auditors' Report 18
Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997 19
Consolidated Balance Sheets as of June 30, 1999 and 1998 20-21
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997 22-23
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1999, 1998 and 1997 24
Notes to Consolidated Financial Statements 25
</TABLE>
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of GRC International, Inc.:
Vienna, Virginia
We have audited the accompanying consolidated balance sheets of GRC
International, Inc. and subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
McLean, Virginia
August 11, 1999, except for Note 9 as to which the date is September 2, 1999.
18
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
1999 1998 1997
--------- --------- ---------
(in thousands, except for per share data)
<S> ............................................................................ <C> <C> <C>
Revenues .......................................................................$ 164,602 $ 130,927 $ 117,599
Cost of services ............................................................... 138,770 110,477 96,123
Indirect and other costs ....................................................... 16,574 15,048 16,854
--------- --------- ---------
Operating income ............................................................... 9,258 5,402 4,622
Interest expense, net .......................................................... (1,215) (1,866) (1,343)
--------- --------- ---------
Income from continuing operations
before income tax benefit .................................................... 8,043 3,536 3,279
Income tax benefit ............................................................. 863 7,166 10,582
--------- --------- ---------
Income from continuing operations .............................................. 8,906 10,702 13,861
--------- --------- ---------
Discontinued Operations:
Income (loss) from discontinued operations, .................................... 225 758 (25,220)
net of tax of $141 in 1999 and $471 in 1998
Loss on disposal of discontinued operations,
including provision of $2,775 for
operating losses during phase out ............................................ -- -- (6,391)
--------- --------- ---------
Income (loss) from discontinued operations ..................................... 225 758 (31,611)
--------- --------- ---------
Net income (loss) ..............................................................$ 9,131 $ 11,460 $ (17,750)
========= ========= =========
Earnings Per Share Amounts:
Basic income per share from
continuing operations ........................................................$ 0.87 $ 1.09 $ 1.48
Basic income (loss) per common share ...........................................$ 0.89 $ 1.17 $ (1.91)
Weighted average common shares ................................................. 10,230 9,838 9,338
Diluted income per share from
continuing operations ........................................................$ 0.85 $ 1.07 $ 1.45
Diluted income (loss) per common share .........................................$ 0.87 $ 1.14 $ (1.76)
Weighted average common shares and
equivalents .................................................................. 10,498 10,254 9,943
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
ASSETS
1999 1998
-------- --------
(in thousands)
<S> ................................................................................................ <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................................................... $ 88 $ 3,648
Accounts receivable, net ........................................................................... 36,438 28,702
Unbilled reimbursable costs and fees ............................................................... 2,924 4,189
Other receivables .................................................................................. 1,339 893
Prepaid expenses and other current assets .......................................................... 522 486
Deferred income taxes .............................................................................. 6,871 1,239
-------- --------
Total current assets ...................................................................... 48,182 39,157
-------- --------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements ......................................................... 5,298 5,121
Equipment, furniture and fixtures .................................................................. 17,294 15,517
Less accumulated depreciation and amortization ................................................... (13,497) (11,069)
-------- --------
Property and equipment, net ............................................................... 9,095 9,569
-------- --------
OTHER ASSETS:
Goodwill and other intangible assets, net .......................................................... 1,989 2,176
Deferred income taxes .............................................................................. 15,428 16,678
Deposits and other ................................................................................. 1,387 3,683
-------- --------
Total other assets ........................................................................ 18,804 22,537
-------- --------
TOTAL ASSETS ....................................................................................... $ 76,081 $ 71,263
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
-------- --------
(in thousands, except share
and per share data)
<S> ........................................................................................................ <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt ....................................................................... $ 9 $ 975
Accounts payable ........................................................................................... 5,567 3,897
Accrued compensation and benefits .......................................................................... 14,461 13,268
Accrued expenses and other current liabilities ............................................................. 3,063 2,241
-------- --------
Total current liabilities ......................................................................... 23,100 20,381
-------- --------
LONG-TERM LIABILITIES:
Long-term debt ............................................................................................. 12,623 23,264
Other long-term liabilities ................................................................................ 299 258
-------- --------
Total long-term liabilities ....................................................................... 12,922 23,522
-------- --------
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 - 10,549,003 shares in 1999
and 10,508,791 shares in 1998 ............................................................................ 1,055 1,051
Paid-in capital .......................................................................................... 83,277 79,712
Accumulated deficit ...................................................................................... (40,428) (49,558)
-------- --------
43,904 31,205
Less: Treasury stock, at cost; 300,000 shares .......................................................... (3,845) (3,845)
-------- --------
Total stockholders' equity ........................................................................ 40,059 27,360
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................................................. $ 76,081 $ 71,263
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
1999 1998 1997
------- ------- -------
<S> ......................................................................... <C> <C> <C>
(in thousands)
CASH FLOWS FROM CONTINUING OPERATIONS:
Income from continuing operations ...........................................$ 9,130 $ 10,702 $ 13,861
Reconciliation of income from continuing operations
Depreciation and amortization .......................................... 2,888 3,177 3,330
Deferred income tax benefit ............................................ (957) (6,806) (10,582)
Changes in assets and liabilities
Accounts receivable and unbilled
costs and fees ................................................... (6,471) (3,728) 947
Prepaid expenses and other current assets .......................... (598) 287 (37)
Accounts payable ................................................... 1,670 1,287 (2,197)
Accrued expenses and other current liabilities ..................... 2,127 689 227
Other .............................................................. 437 (44) 103
-------- -------- --------
Net cash provided by operating activities ................................... 8,226 5,564 5,652
-------- -------- --------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations .................................. 225 758 (31,611)
Reconciliation of income from discontinued operations
Non-cash charges and changes in net assets/liabilities ................. (337) (4,223) 9,429
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 .................................... (112) (3,065) (12,425)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment ................................. (2,227) (1,733) (3,468)
Collection of note receivable .......................................... 2,016 -- --
Other .................................................................. -- (32) (344)
-------- -------- --------
Net cash used in investing activities ....................................... (211) (1,765) (3,812)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital lease obligations ............... (11,607) (5,552) (4,443)
Bank borrowings ........................................................ -- 2,710 13,881
Proceeds from convertible debenture, warrants and other ................ -- -- 4,000
Deferred financing costs ............................................... -- -- (207)
Issuance of common stock ............................................... 144 -- 320
-------- -------- --------
Net cash (used in) provided by financing activities ......................... (11,463) (2,842) 13,551
-------- -------- --------
Net (decrease) increase in cash and equivalents ............................. (3,560) (2,108) 2,966
Cash and equivalents at beginning of year ................................... 3,648 5,756 2,790
-------- -------- --------
Cash and equivalents at end of year .........................................$ 88 $ 3,648 $ 5,756
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid for:
Interest $1,475 $2,239 $2,055
Taxes 201 28 80
Other non-cash financing activities:
Conversion of debentures to common stock --- 2,814 750
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
------ ------ ------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balances as of July 1, 1996 ...........................................9,586 $ 958 $ 74,830 $(43,268) $ (3,845)
Stock issued under employee and director plans .................. 77 8 310 -- --
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 ...........................................
Stock issued under employee and director plans .................... 35 3 7 -- --
Conversion of debenture to common stock ........................... 621 63 2,751 -- --
Net income* ....................................................... -- -- -- 11,460 --
------- ------- ------- ------- -------
Balances as of June 30, 1998 .........................................10,511 1,051 79,712 (49,558) (3,845)
Stock issued under employee and director plans .................. 41 4 140 -- --
Tax effect of prior year option exercises (see note 4) ........... -- -- 3,425 -- --
Net income* ..................................................... -- -- -- 9,130 --
------- ------- ------- ------- -------
Balances as of June 30, 1999 .........................................10,549 $1,055 $ 83,277 $(40,428) $ (3,845)
======= ======= ======= ======== ========
</TABLE>
* The Company had no items of other comprehensive income (loss).
The accompanying notes are an integral part of these statements.
24
<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.
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.
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, 1999 and 1998, accumulated
amortization of goodwill was $1,388,000 and $1,312,000, respectively, and of
other intangible assets was $1,475,000 and $1,392,000, 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.
25
<PAGE>
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. A portion of any such contributions is at the
discretion of the Board of Directors. The total expense under the deferred
income plan was approximately $3,688,000, $3,367,000 and $3,785,000 in 1999,
1998 and 1997, respectively.
During 1999, the Company terminated its defined benefit pension plan
for directors who are not employees of the Company. The total expense charged
for the plan during 1999, including the cost of termination, was $218,000. The
cost of the plan in 1998 and 1997 was $61,000 and $53,000, 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 - Basic earnings per share are computed based upon
the weighted average number of shares of common stock outstanding during the
period. Diluted earnings per share consider 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 stock
method or the if-converted method.
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.
Reclassifications - Certain prior year amounts have been reclassified
to conform with the current year presentation.
New Accounting Pronouncement - For the year ending June 30, 2001, the
Company will be required to adopt SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. Management does not believe adoption of this
Standard will have a material impact on its financial statements.
26
<PAGE>
(2) EARNINGS PER SHARE
<TABLE>
<CAPTION>
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. (Amounts in thousands, except per-share
amounts).
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1997
--------------------- ----------------------- -----------------------
$ Per $ Per $ Per
Income Shares Share Income Shares Share Income Shares Share
--------------------- ----------------------- -----------------------
Basic earnings per share
Income available to common
stockholders .......................................$ 8,906 10,230 $0.87 $10,702 9,838 $1.09 $13,861 9,338 $1.48
Effect of dilutive securities
Stock options .......................................... -- 268 -- 146 -- 176
Convertible debenture .................................. -- -- 184 270 425 329
-------------- ----------------
Diluted earnings per share ............................$ 8,906 10,498 $0.85 $10,886 10,254 $1.07 $14,286 9,843 $1.45
============== ================ ================
</TABLE>
27
<PAGE>
(3) 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:
<S> <C> <C>
1999 1998
------- -------
(in thousands)
Accounts receivable, net of reserves of
$136 in 1999 and $41 in 1998 -
U.S. government $ 34,520 $ 27,616
Non-U.S. government 1,918 1,086
-------- --------
$ 36,438 $ 28,702
======== ========
Unbilled reimbursable costs and fees
U.S. government $ 2,388 $ 3,424
Non-U.S. government 536 765
-------- --------
$ 2,924 $ 4,189
======== ========
</TABLE>
Invoices released in July that relate to June activity were $15,463,000
and $12,668,000 for 1999 and 1998, 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:
<S> <C> <C>
1999 1998
-------- --------
(in thousands)
Retainages billable upon completion of contract $ 2,336 $ 2,561
Unbilled direct costs, fee and indirect costs incurred
in excess of provisional billing rates 212 836
Costs incurred in excess of contractual authorization,
billable upon execution of a contract or contractual
amendment to increase funding 375 792
-------- --------
$ 2,923 $ 4,189
======== ========
</TABLE>
At June 30, 1999, unbilled reimbursable costs and fees expected to be
collected after one year were approximately $838,000.
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.
28
<PAGE>
(4) INCOME TAXES
<TABLE>
<CAPTION>
The differences between the tax provision related to continuing
operations calculated at the statutory federal income tax rate and the actual
tax benefit recorded for each year are as follows:
<S> ................................................................. <C> <C> <C>
1999 1998 1997
-------- -------- --------
(in thousands)
Income tax provision at statutory federal rate ...................... $ 2,735 $ 1,202 $ 1,115
State income taxes, net of federal benefit .......................... 372 163 151
Change in valuation reserve ......................................... (4,105) (8,349) (11,848)
Other ............................................................... 135 (181) --
-------- -------- --------
Income tax benefit .................................................. $ (863) $ (7,166) $(10,582)
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
The primary components of the Company's net deferred tax asset are as
follows:
<S> .................................................................................................. <C> <C>
As of June 30,
--------------------
1999 1998
-------- --------
(in thousands)
Deferred tax assets:
Reserves and other nondeductible accruals ....................................................... $ 2,064 $ 2,167
Compensation not currently deductible ........................................................... 3,047 2,094
Net operating losses ............................................................................ 19,000 26,257
AMT and general business credits ................................................................ 992 816
Other ........................................................................................... -- 9
Valuation reserve ............................................................................... -- (9,150)
-------- --------
Total deferred tax assets ................................................................. 25,103 22,193
-------- --------
Deferred tax liabilities:
Unbilled reimbursable costs and fees ............................................................ (2,152) (2,945)
Prepaid expenses and rent ....................................................................... (383) (342)
Depreciation (tax over book) .................................................................... (269) (349)
Internally developed software ................................................................... -- (143)
Other .......................................................................................... -- (497)
-------- --------
Total deferred tax liabilities ............................................................ (2,804) (4,276)
-------- --------
Net deferred tax asset .................................................................... $ 22,299 $ 17,917
======== ========
</TABLE>
29
<PAGE>
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $50 million available to reduce future federal tax liabilities, of
which approximately $1.8 million expire in 2000, $9.2 million expire between
2001 and 2010, $26 million expire in 2011, and $13 million expire in 2012. The
benefit of the loss carryforwards has been fully recognized in the statements of
operations or as direct credits to stockholder's equity in fiscal 1999 for that
portion ($3,425,000) of the net operating losses related to tax benefits from
the exercise of employee stock options.
Realization of the net deferred tax asset of $22.3 million is dependent
primarily 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.
(5) DEBT
Long-term debt at June 30, consists of the following:
1999 1998
--------- ---------
(in thousands)
Revolving credit agreement $ 7,873 $ 18,506
Term loans 4,750 4,750
Equipment financing --- 961
Other 9 22
--------- --------
Total long-term debt $ 12,632 $ 24,239
Less current portion (9) (975)
-------- --------
$ 12,623 $ 23,264
======== ========
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 the loan was fully retired during 1999.
Revolving Credit Agreement and Term Loans - At June 30, 1998, the
Company was party to a revolving credit agreement with its bank that provided
for secured borrowings up to $22 million, and an additional $8 million of
financing under term loans. Both loans accrued interest at the bank's prime
rate, which was 8.0% as of June 30, 1999. See also Note 9 - Subsequent Events
for a discussion of a new line of credit.
30
<PAGE>
Convertible Debenture - On January 21, 1997, the Company entered into a
Convertible Securities Subscription Agreement ("Subscription Agreement")
pursuant to which an investor purchased a $4 million 5% Convertible Debenture
due January 2000 ("Debenture"). By April 1998, the Debenture had been fully
converted into 804,322 shares.
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).
(6) COMMITMENTS AND CONTINGENCIES
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)
2000 $ 6,838 $ 1,185
2001 6,428 1,094
2002 6,157 648
2003 5,636 324
2004 5,108 132
Thereafter 25,851 ---
-------- --------
$ 56,018 $ 3,383
======== ========
Rent expense, net of sublease rental income, under operating leases was
$5,748,000, $6,115,000 and $6,787,000 in 1999, 1998 and 1997, respectively.
31
<PAGE>
(7) STOCK-BASED COMPENSATION PLANS
At June 30, 1999, the Company sponsors several stock-based
compensation plans for employees and directors. Under these plans, 2,715,304
options are authorized, and 1,637,009 options are outstanding at June 30, 1999.
Options granted under employee plans vest over periods ranging from six
months to four years, and generally have a 10-year term. Under these plans,
options are issued at the fair market value on the date of grant, and therefore,
under the intrinsic value accounting method, no compensation is recorded in the
statement of operations.
The Company permits outside directors to receive stock and/or
non-qualified options in lieu of cash for director's fees. Options granted under
this plan are immediately exercisable, and remain exercisable for three years
after a participant ceases to be a director.
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 three years after an officer's termination as an employee. Compensation cost
recognized under the Cash Compensation Replacement Plan for the years ended June
30,1999, June 30, 1998 and June 30, 1997 equaled $43,000, $8,000 and $25,000,
respectively.
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.
The shares received are retired and are reflected as reductions in common stock
and paid-in capital.
32
<PAGE>
<TABLE>
<CAPTION>
The Company uses the intrinsic value method and applies APB Opinion 25
and related interpretations in accounting for its plans. In accordance with FASB
Statement 123, the following pro forma net income and earnings per share
information is presented as if the Company accounted for stock-based
compensation cost using the fair value method. (These pro forma amounts may not
be indicative of such effects in future years.):
<S> ......................................................... <C> <C> <C> <C> <C> <C>
1999 1998 1997
------------------ ---------------- --------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
------------------ ------------------ ----------------------
Net income (loss) ....................................... $ 9,131 $ 8,089 $11,460 $ 9,702 $(17,750) $(19,444)
(in thousands)
Diluted earnings ........................................ $ 0.87 $ 0.77 $ 1.14 $ 0.96 $ (1.76) $ (1.93)
(loss) per share
</TABLE>
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:
1999 1998 1997
------ ------ -----
(a) Dividends --- --- ---
(b) Expected volatility 40% 50% 50%
(c) Risk-free interest rate 6.0% 5.5% 6.5%
(d) Expected life in years 5 5 5
33
<PAGE>
<TABLE>
<CAPTION>
A summary of the status of the Company's stock options as of June 30,
1999, 1998 and 1997 and changes during those years is presented below (shares in
thousands):
Option Plan Summary
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
--------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------------------------- -------------------------- --------------------------
Outstanding @
beginning of year 1,487,241 $10.71 1,223,350 $16.38 915,585 $17.60
Granted 576,074 $ 5.53 837,230 $ 6.63 548,677 $12.98
Exercised (38,552) $ 2.63 (88,964) $ 5.59 (83,675) $ 6.02
Canceled (387,754) $18.35 (484,375) $18.85 (157,237) $17.15
--------- --------- ---------
Outstanding @
end of year 1,637,009 $ 7.22 1,487,241 $10.71 1,223,350 $16.38
========= ========= =========
Options exercisable
at year end 695,186 $ 7.99 706,294 $10.82 374,793 $13.30
========= ========= =========
Options available
for future grant 1,087,294 526,972 591,556
========= ========= =========
Weighted average
fair value of options
granted during the
year $ 2.84 $ 3.46 $ 6.73
========= ========= =========
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------------------------------------------------------------------------------------------------
$ .10 - $ 9.38 1,467,759 8.6 $ 5.85 541,874 $ 4.87
$14.00 - $ 37.69 169,250 6.3 $19.05 153,313 $19.00
--------- --- ------- ------- ------
$ .10 - $ 37.69 1,637,009 8.3 $ 7.22 695,186 $ 7.99
</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 62,302, 58,230 and 65,871 shares of common stock to its
employees during the years ended June 30, 1999, 1998 and 1997, respectively
34
<PAGE>
(8) 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 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. In 1999, the directors accelerated the termination of the
plan from its original date of December 31, 2005 to August 31, 2000.
Common Stock Purchase Warrants - In connection with issuance of the
Convertible Debenture in 1997 (see Note 5) and the Structured Equity Line
Financing (see Note 9) the Company issued and has outstanding warrants to
purchase 445,000 shares of the Company's common stock at a price of $8.47 per
share. The warrants are fully exercisable and expire on January 30, 2004. If the
Company sells substantially all of its assets or enters into a merger or
acquisition or other similar transaction, the warrants are to be repriced at the
lesser of (i) $8.47 per share, or (ii) 80% of the transaction value as defined
in the warrant agreements.
(9) SUBSEQUENT EVENTS
Structured Equity Line - On August 26, 1999, the Company terminated the
Structured Equity Line Financing. This agreement permitted the Company, under
certain conditions, to require an investor to purchase up to $18 million of
common stock. The Company accrued the specified liquidated damages of $300,000
for termination of the agreement in 1999.
Revolving Credit Agreement - Both the revolving credit agreement and
term loans discussed in Note 5 were terminated and replaced with a $35 million
Amended and Restated Revolving Credit Agreement (the "Credit Agreement")
effective August 27, 1999. The Company has both Prime and LIBOR (London
Interbank Offered Rate) based
35
<PAGE>
borrowing options under the Credit Agreement. The interest accrued on LIBOR
loans is based on a ratio of debt to cash flow. The current premium is 1.10%
above the applicable LIBOR rate. The Company also pays a performance based
commitment fee, which is currently 0.30% of the line of credit.
The Credit Agreement is secured by substantially all of the Company's
assets, and contains customary covenants, including a requirement to maintain a
ratio of total debt to cash flow of less than 3 to 1. The Company is in
compliance with its covenants under this Agreement. The $35,000,000 Credit
Agreement, unless extended, matures August, 2001.
Acquisition of Management Consulting and Research, Inc. (MCR) -
Effective September 2, 1999, the Company acquired all of the outstanding stock
of Management Consulting and Research, Inc. (MCR). The gross purchase price for
MCR was approximately $27 million. After applying approximately $4 million of
MCR's cash available at closing, the net price of $23 million was paid with 2
million shares of GRCI's common stock valued at approximately $16 million and
approximately $7 million in cash financed through the new credit agreement. MCR
provides professional services to the U.S. Government primarily in the areas of
budget analysis, cost estimating and program management. MCR's revenues are
approximately $30 million per year. The acquisition will be accounted for using
the purchase method of accounting and will be consolidated with GRC from the
date of acquisition. The goodwill to be recognized in the transaction is
estimated at $21 million. The Company expects to amortize it over a period of 30
years.
(10) 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 Notes 5 and 9 for discussion).
(11) 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.
(12) SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" during fiscal 1999. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major customers.
All of the Company's business relates to information technology
consulting services. The chief operating decision-maker is provided information
about the revenues generated
36
<PAGE>
by operating segment and utilizes income before interest and taxes as a measure
of segment performance. The Company's services are delivered to clients
primarily in the United States, and the Company's long-lived assets are located
within the United States. Based on SFAS No. 131 criteria, the Company has two
reportable operating segments; U.S. Federal Government, and Commercial. Within
the U.S. Federal Government segment are sales to the Company's largest customer,
the Department of Defense ("DoD"). Revenues from the DoD represented 96%, 98%
and 94% of total U.S. Government revenues in 1999, 1998, and 1997 respectively.
The Commercial services segment was formed in fiscal 1998 from small
pieces of business that were being executed in what is now discontinued
operations and in the U.S. Federal Government services segment. It is
impractical to break out separate financial results for the segment in fiscal
1997.
<TABLE>
<CAPTION>
<S> ......................................................................... <C> <C> <C> <C>
U.S. Federal
Government Commercial Corporate Total
------------ ---------- --------- -----
(In Thousands)
1999
Revenues ................................................................ $157,314 $ 7,288 $ -- $ 164,602
Income from continuing operations ....................................... 9,175 1,595 (1,512) 9,258
Depreciation and amortization ........................................... 1,508 84 1,083 2,675
Assets .................................................................. 67,165 3,406 5,510 76,081
Capital expenditures .................................................... 1,180 39 1,008 2,227
1998
Revenues ................................................................ $128,768 $ 2,159 $ -- $ 130,927
Income before interest and taxes ........................................ 6,644 159 (1,401) 5,402
Depreciation and amortization ........................................... 1,726 116 914 2,756
Assets .................................................................. 58,407 2,367 10,489 71,263
Capital expenditures .................................................... 1,447 -- 286 1,733
</TABLE>
37
<PAGE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
------- ------- ------- --------
<S> .............................................................. <C> <C> <C> <C>
Year ended June 30,1999
Revenues .................................................... $ 36,756 $ 39,052 $ 42,117 $ 46,677
Income from continuing operations
before income taxes ...................................... 1,765 1,890 1,971 2,417
Income from continuing operations ........................... 3,030 3,100 1,290 1,486
Income from discontinued operations ......................... 54 140 26 5
Net income .................................................. 3,084 3,240 1,316 1,491
Diluted earnings per share .................................. 0.30 0.31 0.12 0.14
Year ended June 30,1998
Revenues .................................................... $ 27,165 $ 29,705 $ 35,307 $ 38,750
Income from continuing operations
before income taxes ..................................... 882 696 1,055 903
Income from continuing operations ........................... 1,136 2,027 3,548 3,991
Income from discontinued operations ......................... 290 468 -- --
Net income .................................................. 1,426 2,495 3,548 3,991
Diluted earnings per share .................................. 0.15 0.25 0.35 0.39
</TABLE>
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).
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).
38
<PAGE>
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.
39
<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 23, 1999 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 23, 1999 By: /s/ Gary Denman
-------------------------------
Gary Denman
President and Chief Executive
Officer
Date: September 23, 1999 By: /s/ James P. Allen
------------------------------
James P. Allen
Senior Vice President, Chief
Financial Officer and Treasurer
(Chief Accounting Officer)
40
<PAGE>
Date: September 23, 1999 By: /s/ Joseph R. Wright, Jr.
--------------------------------
Joseph R. Wright, Jr., Chairman
of the Board of Directors
Date: September 23, 1999 By: /s/ Peter A. Cohen
--------------------------------
Peter A. Cohen, Vice Chairman
of the Board of Directors
Date: September 23, 1999 By: /s/ H. Furlong Baldwin
--------------------------------
H. Furlong Baldwin, Director
Date: September 23, 1999 By: /s/ Frank J.A. Cilluffo
--------------------------------
Frank J.A. Cilluffo, Director
Date: September 23, 1999 By: /s/ Gary L. Denman
--------------------------------
Gary L. Denman, Director
Date: September 23, 1999 By: /s/ Leslie B. Disharoon
------------------ --------------------------------
Leslie B. Disharoon, Director
Date: September 23, 1999 By: /s/ Charles H.P. Duell
--------------------------------
Charles H.P. Duell, Director
Date: September 23, 1999 By: /s/ Leon E. Salomon
--------------------------------
Leon E. Salomon, Director
41
<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,
333-38445 and 333-66917 of GRC International, Inc. on Form S-8 and Registration
Statements Nos. 333-22087 and 333-22147 of GRC International, Inc. on Form S-3
of our report dated August 11, 1999, except for Note 9 as to which the date is
September 2, 1999, appearing in this Annual Report on Form 10-K of GRC
International, Inc. for the year ended June 30, 1999.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
McLean, Virginia
September 24, 1999
42
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<S> .......................................................... <C> <C> <C> <C> <C>
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
----------- --------- -------- -------- -------- ------
Year ended June 30, 1999
Reserves for uncollectible receivables -
Deducted from accounts receivable ........................ $ 41 $ 156 $ -- $ (61) $136
Year ended June 30, 1998
Reserves for uncollectible receivables -
Deducted from accounts receivable ........................ $ 41 $ -- $ -- $ -- $ 41
Year ended June 30, 1997
Reserves for uncollectible receivables -
Deducted from accounts receivable ........................ $ 5 $ 36 $ -- $ -- $ 41
(A) Reductions of revenue for potentially nonrecoverable costs.
(B) Write off of uncollectible accounts and cost against reserves, net of recoveries.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
(Exhibit Numbers correspond to Exhibit Table,
Regulation S-K, Item 601)
Exhibit
Number Page
- ------ ----
<S> <C> <C>
2.1 Agreement and Plan of Merger dated August 5, 1999 by and among
GRC International, Inc., MAC Merger Corporation, Management
Consulting & Research, Inc. and Gerald R. McNichols (incorporated
by reference to Exhibit 2.1 to Form 8-K dated September 17, 1999)
2.2 Indemnity Agreement dated September 1, 1999 by and among GRC
International, Inc., MAC Merger Corporation, Management
Consulting & Research, Inc. and Gerald R. McNichols. -----
2.3 Noncompetition Agreement dated as of September 1, 1999 by and
among GRC International, Inc., Management Consulting & Research,
Inc. and Gerald R. McNichols. -----
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* 1998 Option Plan
10.4* Cash Compensation Replacement Plan -----
10.5* Incentive Compensation Plan (incorporated by reference to Exhibit
10.7 to the 1995 Form 10-K)
10.6* Directors Fee Replacement Plan -----
10.7* Directors Phantom Stock Plan (incorporated by reference to
Exhibit 10.7 to the 1996 Form 10-K)
10.8* Directors Retirement Plan -----
10.9* Form of Directors' Deferred Stock Unit Agreement -----
10.10 Amended and Restated Revolving Credit and Term Loan Agreement
("Loan Agreement") with Mercantile-Safe Deposit & Trust Company
("Mercantile"), dated as of August 27, 1999 -----
<PAGE>
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 Amended and Restated Rights Agreement dated May 14, 1999 between
the Company and The American Stock Transfer & Trust Company -----
10.16* 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)
10.17* Amendment Number One to Employment Agreement between the Company
and Jim Roth dated as of June 30, 1998 (incorporated by reference
to Exhibit 21 to the 1998 Form 10-K)
10.18* Note dated July 9, 1992, and Deed of Trust dated as of August 11,
1993, by and between the Company and Jim Roth (incorporated by
reference to Exhibit 10.15 to the 1994 Form 10-K)
10.19* Amendment to Deed of Trust Note dated as of March 26, 1998
(incorporated by reference to Exhibit 10.23 to the 1998 Form
10-K)
10.20* Independent Contractor Agreement dated as of July 1, 1998 between
the Company and Jim Roth (incorporated by reference to Exhibit
10.24 to the 1998 Form 10-K)
10.21* Independent Contractor Agreement by and among GRC International,
Inc. and Jim Roth for the term of November 6, 1998 to November 5,
2001. -----
10.22* Fiscal 1999 Chairman's Agreement dated as of July 1, 1998 between
Joseph R. Wright, Jr. and the Company -----
<PAGE>
10.23* Fiscal 2000 Chairman's Agreement dated as of July 1, 1999 between
Joseph R. Wright, Jr. and the Company -----
10.24* Vice Chairman's Agreement dated as of September 25, 1997 between
Peter A. Cohen and the Company -----
10.25* Employment Agreement between the Company and Gary L. Denman
(incorporated by reference to Exhibit 10.25 to the 1998 Form
10-K)
10.26* Form of Employment Agreement for Michael G. Stolarik, Thomas E.
McCabe and James P. Allen -----
10.27* Form of Employment Agreement for James L. Selsor -----
10.28* Separation and Release Agreement dated as of April 20, 1999
between James L. Selsor and the Company -----
10.29 Building Lease between the Company and Bermant Development
Company (incorporated by reference to Exhibit 10.21 to the 1995
Form 10-K)
10.30 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)
10.31 320,000 Share Common Stock Purchase Warrant issued by the Company
on January 30, 1997 to Halifax Fund L.P. ("Halifax")
(incorporated by reference to Exhibit 10.4 to the Company's Form
10-Q for the quarter ended December 31, 1996)
10.32 Registration Rights Agreement dated as of January 30, 1997
between the Company and Halifax (incorporated by reference to
Exhibit 10.5 to the Company's Form 10-Q for the quarter ended
December 31, 1996)
10.33 125,000 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 Form 10-Q for the
quarter ended December 31, 1996)
10.34 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 Form 10-Q
for the quarter ended December 31, 1996)
11 Statement of Computation of Earnings Per Share -----
21 Subsidiaries of the Registrant -----
<PAGE>
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 -----
</TABLE>
* Indicates management contract or compensatory plan.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated September 1, 1999 (the
"Agreement"), by and among GRC International, Inc., a Delaware corporation
("Parent"), MAC Merger Corporation, a Virginia corporation ("Merger Sub"),
Management Consulting & Research, Inc., a Virginia corporation (the "Company"),
and Gerald R. McNichols, the major stockholder of the Company (the "Major
Stockholder").
WHEREAS, the Parent, Merger Sub, the Company and the Major Stockholder
have entered into an Agreement and Plan of Merger, dated as of August 5, 1999
(the "Merger Agreement"), providing for the merger of the Company with and into
Merger Sub (the "Merger") (Merger Sub, as the surviving corporation in the
Merger, sometimes referred to herein as the "Surviving Corporation");
WHEREAS, the parties hereto desire to provide for indemnification for
breaches of representations, warranties and covenants and for certain other
matters under the Merger Agreement;
WHEREAS, one of the conditions to the consummation of the Merger is the
execution and delivery of this Agreement; and
WHEREAS, the Major Stockholder will receive substantial direct and
indirect benefits as a result of the Merger, and in consideration of such
benefits, is executing and delivering this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Definitions.
-----------
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Merger Agreement.
2. Indemnification.
---------------
(a) Indemnification by the Major Stockholder. Subject to Section 2(e),
the Major Stockholder shall indemnify the Parent Companies, their respective
directors, officers, employees and agents, and their respective successors and
assigns (collectively, the "Parent Company Indemnified Parties") from and
against and in respect of any and all losses, costs, fines, liabilities, claims,
penalties, interest, damages and expenses (including reasonable legal fees and
expenses incurred in the investigation, defense and settlement of claims and
actions) (collectively "Losses") that may be suffered or incurred by any of them
resulting from, in connection with or arising out of:
(i) any breach or inaccuracy of any representation or warranty made
by the Major Stockholder in the Merger Agreement;
<PAGE>
(ii) any breach of any covenant or agreement made by the Major
Stockholder in the Merger Agreement;
(iii) any breach or inaccuracy of any representation or warranty
made by the Company in the Merger Agreement or in any closing
certificate executed and delivered by, or on behalf of, the Company in
connection with the Merger Agreement;
(iv) any breach at or prior to the Effective Time of any covenant
or agreement made by the Company in the Merger Agreement;
(v) any Taxes imposed on or incurred by the Company or any of its
subsidiaries for any taxable period ending on or before the Effective
Time (or portion, determined as described in Section 2(c)(ix), of any
Taxes imposed on or incurred by the Company or any of its subsidiaries
for any taxable period beginning before and ending after the Effective
Time which is allocable to the portion of such taxable period occurring
on or before the Effective Time (the "Pre-Closing Period")), to the
extent such Taxes exceed the amount of estimated payments made prior to
the Effective Time;
(vi) the action pending in the Circuit Court for Fairfax County,
Virginia, styled HomeVision USA, L.L.C. v. Realty Media, L.C. et al.,
In Chancery No. 161784, the matters alleged therein or any other claim
or allegation relating thereto;
(vii) the sponsorship, formation, operation and qualification of
the ESOP or the Management Consulting & Research, Inc. Profit Sharing
Plan (the "Profit Sharing Plan"), any transaction or condition
occurring or existing on or prior to the Closing Date with respect to
the Plans, including any such Losses suffered or incurred in connection
with the operation, continuance and qualification of such Plans from
and after the Closing Date to the extent such Losses result from any
transaction or condition occurring or existing on or prior to the
Closing Date and any such Losses incurred as a result of actions taken
by Parent, the Major Stockholder, the Company or the Surviving
Corporation, or any representative thereof, in accordance with the
provisions of Section 6 of this Agreement. The indemnification provided
under this Section 2(a)(vii) shall include in the determination of
Losses arising from such matters the amount of any income Tax, together
with any interest and penalties thereon payable by any employees prior
to a distribution to such employees of Plan assets in accordance with
the terms of the Plans or prior to the completion of the merger of the
Plans with, or transfer of Plan assets to other qualified retirement
plans sponsored by the Parent Companies; or
(viii) any action, suit or proceeding relating to any of the
foregoing or to the enforcement of Section 2 of this Agreement.
Notwithstanding any other provision of this Agreement to the contrary,
Major Stockholder will have no liability to Parent Companies with
respect to Losses arising solely as a result of the failure to obtain a
consent of a lessor under a real property lease listed under item 3 on
Schedule 3.18(a) of the Merger Agreement prior to the Effective Time.
(b) Parent Companies' Indemnification. Subject to Section 2(e), Parent
Companies shall indemnify and hold the Major Stockholder harmless from and
against and in respect of any
2
<PAGE>
and all Losses that may be suffered or incurred by any of them resulting from,
in connection with or arising out of:
(i) any breach or inaccuracy of any representation or warranty made
by the Parent Companies in the Merger Agreement or in any closing
certificate executed and delivered by, or on behalf of, the Parent
Companies in connection with the Merger Agreement;
(ii) any breach of any covenant or agreement made by the Parent
Companies in the Merger Agreement; or
(iii) any action, suit or proceeding relating to any of the
foregoing or to the enforcement of Section 2 of this Agreement.
(c) Indemnification Procedures. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
(i) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (A) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party
claim or claims ("Third Party Claim") asserted against the Indemnified
Party which could give rise to a right of indemnification under this
Agreement and (B) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the
Third Party Claim, a copy of all papers served with respect to such
claim (if any), an estimate of the amount of damages attributable to
the Third Party Claim, if reasonably possible, and the basis of the
Indemnified Party's request for indemnification under this Agreement.
(ii) Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified
Party (A) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Agreement with respect to
such Third Party Claim and (B) whether the Indemnifying Party desires,
at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(iii) If the Indemnifying Party notifies (a "Defense Notice") the
Indemnified Party within the Election Period that the Indemnifying
Party does not dispute its potential liability to the Indemnified Party
under this Agreement and that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall
have the right to defend, at its sole cost and expense, such Third
Party Claim by all appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnifying Party to a final conclusion
or settled at the discretion of the Indemnifying Party in accordance
with this Section 2(c). When the Indemnifying Party conducts the
defense, the Indemnified Party shall have the right to approve the
defense counsel representing the Indemnifying Party in such defense,
which approval shall not be unreasonably withheld or delayed, and in
the event the Indemnifying Party and the Indemnified Party cannot agree
upon such counsel within ten (10) days after the Defense Notice is
provided, then the Indemnifying Party shall propose an alternate
defense counsel, which shall be subject again to the Indemnified
Party's approval, which approval
3
<PAGE>
shall not be unreasonably withheld or delayed. The Indemnifying Party
shall have full control of such defense and proceedings including any
compromise or settlement thereof; provided, that without the prior
written consent of the Indemnified Party (which shall not be
unreasonably withheld or delayed), the Indemnifying Party shall not
enter into any settlement of any Third Party Claim if pursuant to or as
a result of such settlement, such settlement would result in any
liability or other obligation on the part of the Indemnified Party for
which the Indemnified Party is not entitled to indemnification
hereunder or which is non-monetary in nature. The Indemnified Party is
hereby authorized, at the sole cost and expense of the Indemnifying
Party (but only if the Indemnified Party is actually entitled to
indemnification hereunder or if the Indemnifying Party assumes the
defense with respect to the Third Party Claim), to file, during the
Election Period, any motion, answer or other pleadings which the
Indemnified Party shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party shall, at the sole cost and
expense of the Indemnifying Party, cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim which the
Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this
Section 2(c) and, except as permitted above, shall bear its own costs
and expenses with respect to such participation.
(iv) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to
defend the Indemnified Party pursuant to this Section 2(c), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to
this Section 2(c) but fails to diligently and promptly prosecute or
settle the Third Party Claim, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying
Party, the Third Party Claim by all appropriate proceedings. The
Indemnified Party shall have full control of such defense and
proceedings; provided, however, that the Indemnified Party may not
enter into, without the Indemnifying Party's consent, which shall not
be unreasonably withheld or delayed, any compromise or settlement of
such Third Party Claim. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified
Party pursuant to this Section 2(c), and the Indemnifying Party shall
bear its own costs and expenses with respect to such participation.
(v) Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party and shall
be conclusively deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder,
subject to the Indemnifying Party's right to appeal an appealable
judgment or order.
(vi) For purposes of this Section 2, any assertion of fact and/or
law by a third party that, if true, would constitute a breach of a
representation or warranty made by a party to this Agreement or make
operational an indemnification obligation hereunder, shall, on the date
that such assertion is made, immediately invoke that party's obligation
to protect, defend, hold harmless and indemnify the other party to this
Agreement pursuant to this Section 2.
4
<PAGE>
(vii) The failure to provide notice as provided in this Section 2
shall not excuse any party from its continuing obligations hereunder;
however, any claim shall be reduced by the Losses resulting from such
party's delay or failure to provide notice as provided in this Section
2.
(viii) Notwithstanding anything to the contrary in this Section 2,
should any Third Party Claim hereunder involve a situation where the
Indemnified Party reasonably anticipates that part of the claim will be
borne by it and part of the claim will be borne by the Indemnifying
Party due to the existence of the limitations in Section 2(e), the
parties shall jointly consult and proceed as to any such Third Party
Claim.
(ix) Whenever it is necessary for purposes of Section 2(a)(v) to
determine the portion of any Taxes imposed on or incurred by the
Company or its subsidiaries for a taxable period beginning before and
ending after the Effective Time which is allocable to the Pre-Closing
Period, the determination shall be made, in the case of property, ad
valorem or franchise Taxes, on a per diem basis and, in the case of
other Taxes, by assuming that the Pre-Closing Period constitutes a
separate taxable period of the Company and the subsidiaries (and any
tax partnerships in which the Company or its subsidiaries has an
interest) and by taking into account the actual taxable events
occurring during such period (except that exemptions, allowances and
deductions for a taxable period beginning before and ending after the
Effective Time that are calculated on an annual or periodic basis shall
be apportioned to the Pre-Closing Period ratably on a per diem basis).
(d) Nature of Other Liabilities. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder which does not
involve a Third Party Claim, the Indemnified Party shall promptly transmit a
written notice (the "Indemnity Notice") to the Indemnifying Party, describing in
reasonable detail the nature of the claim and the basis of the Indemnified
Party's request for indemnification under this Agreement. If the Indemnifying
Party does not notify the Indemnified Party within thirty (30) days from its
receipt of the Indemnity Notice that the Indemnified Party disputes such claim,
the claim specified by the Indemnified Party in the Indemnity Notice shall be
deemed a liability of the Indemnifying Party hereunder.
(e) Certain Limitations on Remedies. Notwithstanding any provision
herein or in the Merger Agreement to the contrary:
(i) The Parent Company Indemnified Parties shall not be entitled to
assert (subject to the proviso below) any claim or claims for
indemnification or reimbursement pursuant to Section 2(a) hereof until,
and only to the extent that, such claim or claims in the aggregate
exceed $100,000 (the "Basket"); provided, however, that any claim or
claims pursuant to Sections 2(a)(i) [representations and warranties of
the Major Stockholder], 2(a)(ii) [covenants and agreements of Major
Stockholder], 2(a)(iii) [representations and warranties of the Company]
(to the extent such claim relates to a breach of or representation or
warranty set forth in Section 3.15 [undisclosed brokers] of the Merger
Agreement), pursuant to Sections 2(a)(iv) [covenants and agreements of
the Company], 2(a)(v) [pre-closing taxes] 2(a)(vi) [pending litigation]
or 2(a)(vii) [ESOP and Profit Sharing Plan] or (to the extent it
relates to such claims) pursuant to Section 2(a)(viii) [enforcement
costs] hereof shall not be subject to such Basket.
5
<PAGE>
(ii) The Major Stockholder shall not be entitled to assert (subject
to the proviso below) any claim or claims for indemnification or
reimbursement pursuant to Section 2(b) hereof until, and only to the
extent that, such claim or claims in the aggregate exceed the Basket;
provided, however, that any claim or claims pursuant to Section 2(b)(i)
[representations and warranties of Parent Companies] (to the extent
such claim relates to a breach of a representation or warranty set
forth in Sections 5.1 [corporate organization], 5.3 [corporate
authority] or 5.8 [Parent shares] of the Merger Agreement), pursuant to
Section 2(b)(ii) [covenants of Parent Companies] or (to the extent it
relates to such claims) pursuant to Section 2(b)(iii) [enforcement
costs] hereof shall not be subject to such Basket.
(iii) No party may seek indemnification under this Section 2 after
the end of the month following the month in which Parent files with the
SEC its annual report on Form 10-K, for the fiscal year ending June 30,
2000 (the "Indemnity Expiration Date"), except for the following, with
respect to which a claim may be made until the third (3rd) anniversary
of the Closing Date (except as otherwise provided below):
(A) claims pursuant to Sections 2(a)(i) [representations and
warranties of Major Stockholder] ;
(B) claims pursuant to Section 2(a)(iii) [representations and
warranties of the Company] (to the extent such claim relates to a
breach of a representation or warranty set forth in Sections 3.3
[capitalization of the Company], 3.10(d), (e) or (l) [ERISA
matters], 3.13 [environmental matters], or 3.15 [undisclosed
brokers] of the Merger Agreement);
(C) claims pursuant to Section 2(a)(iii) [representations and
warranties of the Company] (to the extent such claim relates to a
breach of a representation or warranty set forth in Sections
3.10(d), (e) or (l) [ERISA matters], with respect to which a claim
may be made until ninety (90) days following the expiration of the
applicable statutory limitations period for bringing an action with
respect to such matters;
(D) claims pursuant to Section 2(a)(v) [pre-closing taxes],
with respect to which a claim may be made until ninety (90) days
following the expiration of the applicable statutory limitations
period for bringing an action with respect to such matters;
(E) claims pursuant to Section 2(a)(vii) [ESOP and Profit
Sharing Plan], with respect to which a claim may be made until
ninety (90) days following the expiration of the applicable
statutory limitations period for bringing an action with respect to
such matters
(F) claims pursuant to Section 2(b)(i) (to the extent such
claim relates to a breach of a representation or warranty set forth
in Section 5.8 [Parent shares] of the Merger Agreement); and
(G) claims pursuant to Section 2(b)(ii).
6
<PAGE>
Notwithstanding the foregoing, the indemnification obligation
of the Major Stockholder with respect to claims pursuant to
Section 2(a)(vi) [pending litigation] shall continue until the
matters described in such Section have been finally resolved.
(iv) The aggregate liability of the Major Stockholder for Losses
arising under Section 2(a) shall be limited to $2,710,000 (the "Maximum
Liability"), except for claims pursuant to Sections 2(a)(i)
[representations and warranties of the Major Stockholder], (a)(iii)
[representations and warranties of the Company] to the extent such
claim relates to a breach of a representation or warranty set forth in
3.3 [capitalization of the Company], or 3.4 [corporate authority of the
Company], of the Merger Agreement or claims pursuant to Section
2(a)(vi) [pending litigation]. Notwithstanding anything in this
Agreement or the Merger Agreement to the contrary, in no event shall
the Major Stockholder's aggregate liability exceed the amount of Merger
Consideration received by the Major Stockholder.
(v) The aggregate liability of the Parent Companies for all Losses
arising under Section 2(b) after the Closing Date shall be limited to
the amount of the Maximum Liability, except for claims pursuant to
Section 2(b)(i) to the extent such claim relates to a breach of a
representation or warranty set forth in Sections 5.1, 5.3 or 5.8 of the
Merger Agreement.
(f) Indemnification Obligations. The indemnification obligations set
forth in Section 2 are made notwithstanding any investigation made by or on
behalf of any of the parties hereto or the results of any such investigation and
notwithstanding the participation of any party in the Closing.
(g) Waiver of Contribution. With respect to claims made under this
Agreement, the Major Stockholder hereby waives and agrees not to assert against
the Surviving Corporation, its officers, directors, shareholders, employees or
agents, any claims for contribution or indemnification with respect to the
representations, warranties and agreements made by the Company with respect
thereto.
(h) Payments. Payments of all amounts owing by an Indemnifying Party
pursuant to Sections 2(c)(iii) and 2(c)(iv) shall be made within thirty (30)
days after the latest of (i) the settlement of the Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of such Third Party
Claim or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party pursuant to
Section 2(d) shall be made within thirty (30) days after the later of (i) the
expiration of the thirty-day Indemnity Notice period or (ii) the expiration of
the period for appeal of a final adjudication of the Parent Company's liability
to the Indemnified Party under this Agreement. Any amounts payable by the Major
Stockholder may be paid, at the Major Stockholder's election, by tendering to
the Parent certificates representing a number of shares of Parent Common Stock
equal in value to the amount payable by the Major Stockholder as determined by
the closing price of Parent Stock on the New York Stock Exchange on the date of
such tender or, if there is no such closing price on such date, the closing
price on the last trading date preceding such tender, such certificate to be
properly endorsed, with signatures guaranteed, and otherwise in proper form for
transfer, with
7
<PAGE>
any transfer or other taxes required by reason of the transfer, fully paid or
provided for to the satisfaction of Parent and its transfer agent.
3. Exclusive Remedy.
----------------
The sole recourse and exclusive remedy of the Parent Companies and the
Major Stockholder against each other after the Closing arising out of the Merger
Agreement or any certificate delivered in connection with the Merger Agreement,
or otherwise arising from the Merger, shall be to assert a claim for
indemnification under the indemnification provisions of this Agreement. Without
limiting the foregoing, the Parent and the Major Stockholder, each hereby
expressly waives, releases, disavows and repudiates, to the fullest extent
permitted by law, any right or remedy of recision, or similar right or remedy
granted or to be granted under any state or federal law, rule, regulation or
interpretation thereof, whether now in force or hereafter enacted, applicable
with respect to any of the transactions contemplated by the Merger Agreement or
otherwise with respect to the Parent's acquisition of the Company and the Major
Stockholder's acquisition of the Parent Stock.
4. Settlement of Disputes.
----------------------
Any and all controversies, disputes, or claims arising out of or
relating to this Agreement, or any part hereof, including, without limitation,
the meaning, applicability, or scope of this Section 4 and the performance,
breach, interpretation, meaning, construction, or enforceability of this
Agreement, or any portion hereof, and all claims for rescission or fraud in the
inducement of this Agreement, shall, at the request of any party, be settled or
resolved by binding arbitration pursuant to the commercial rules and regulations
of the American Arbitration Association (the "AAA") for the resolution of
commercial disputes. Any party requesting arbitration under this Agreement shall
make a demand on the other parties by registered or certified mail with a copy
to the AAA. The parties consent and agree to have any such arbitration
proceedings heard in Vienna, Virginia. The arbitration shall take place
regardless of whether any party to the dispute or controversy fails or refuses
to participate. The arbitrators shall apply Virginia substantive law and federal
substantive law where state law is preempted. The arbitrators shall have the
power to grant all legal and equitable remedies and award compensatory damages
provided by Virginia law. The arbitrators shall prepare in writing and provide
to the parties an award including factual findings and the reasons on which the
decision is based. Judgement upon any award may be entered in any court having
jurisdiction thereof.
5. Miscellaneous.
------------=
(a) This Agreement shall be construed by and governed in accordance
with the laws of the Commonwealth of Virginia, without regard to such
jurisdiction's conflicts of laws principles.
(b) This Agreement shall be binding upon and shall inure to the benefit
of the heirs, executors, administrators, legal representatives, successors and
assigns of the parties hereto.
(c) This Agreement may be executed in one or more counterparts which
taken together shall constitute but one and the same instrument.
8
<PAGE>
(d) Section headings contained herein have been inserted for reference
purposes only and shall not be construed as part of this Agreement.
(e) This Agreement may be modified or amended only by a written
instrument duly executed by all parties hereto or their respective successors or
assigns.
(f) All notices, requests, consents and other communications hereunder
shall be deemed given (i) when delivered if delivered personally (including by
courier) (ii) on the third day after mailing, if mailed, postage prepaid, by
registered or certified mail (return receipt requested), (iii) on the day after
mailing if sent by a nationally recognized overnight delivery service which
maintains records of the time, place, and recipient of delivery; or (iv) upon
receipt of a confirmed transmission, if sent by telex, telecopy or facsimile
transmission, in each case to the parties at the following addresses or to other
such addresses as may be furnished in writing by one party to the others:
(i) If to the Parent Companies:
GRC International, Inc.
1900 Gallows Road
Vienna, Virginia 22182
Attn: Thomas E. McCabe, Senior Vice President, Director of
Corporate Development and General Counsel
Facsimile No.: (703) 448-6890
with a copy to:
Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W.
Washington, DC 20037
Attn: Kenneth R. Morrow, Esq.
Facsimile No.: (202) 887-0689
(ii) If to the Major Stockholder:
Gerald R. McNichols, Ph.D.
23349 Parsons Road
Middleburg, VA 20117
with a copy to:
Jaeger & Teras, L.L.P.
1090 Vermont Avenue, N.W.
Suite 350
Washington, DC 20005
Attn: Philip W. Jaeger, Esq.
Facsimile No.: (202) 842-0748
or to such other addresses or persons as any party may have furnished to the
other parties in writing, in accordance herewith.
9
<PAGE>
(g) If any party hereto refuses to comply with, or at any time violates
or attempts to violate, any term, covenant or agreement contained in this
Agreement, any other party hereto may, by injunctive action, compel the
defaulting party to comply with, or refrain from violating, such term, covenant
or agreement, and may, by injunctive action, compel specific performance of the
obligations of the defaulting party.
(h) Except as provided herein, the rights and obligations of the
parties under this Agreement shall not be assigned to any person or entity,
without the written consent of the Major Stockholder and the Parent Companies.
6. ESOP and Profit Sharing Plan.
----------------------------
As soon as practicable after the date hereof, the parties shall cause
an evaluation to be conducted of the ESOP and Profit Sharing Plans. In the event
that any defects are discovered in either Plan which are of a type correctable
under the Voluntary Compliance Resolution ("VCR") program or Walk-In Closing
Agreement Program ("Walk-In CAP") described in Rev. Procs. 99-31 and 98-22, then
the parties shall cause a submission (the "Submission") to be prepared, filed
and pursued under the VCR or Walk-In CAP program, as applicable. All of the
expenses incurred in connection with the evaluation of the Plans and the
preparation, review, filing and prosecution of any Submission, including the
reasonable fees of professionals, and any corrective action required pursuant
thereto, shall be borne equally by the Major Stockholder, on the one hand, and
the Parent Companies, on the other hand.
[The balance of this page has been intentionally left blank.]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
GRC INTERNATIONAL, INC. MANAGEMENT CONSULTING &
RESEARCH, INC.
By: By:
------------------------------- -------------------------------------
President President
MAC MERGER CORPORATION MAJOR STOCKHOLDER:
By:
------------------------------- ----------------------------------------
President Gerald R. McNichols
11
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is dated as of
September 1, 1999, by and among GRC International, Inc., a Delaware corporation
("Parent"), Management Consulting & Research, Inc., a Virginia corporation (the
"Company"), and Gerald R. McNichols, Ph.D. ("McNichols").
WHEREAS, the Company is currently engaged through its subsidiaries in
the business of supplying cost analysis, financial analysis and program
management services for government and commercial clients throughout the United
States and elsewhere in the world (the "Current Business");
WHEREAS, McNichols, in his prior and continuing course of association
with the Company, has obtained knowledge of the Company's trade secrets and
other confidential information and has had dealings with the customers and
suppliers of the Company;
WHEREAS, McNichols has extensive knowledge of the Company's business
and market, is well respected in the industry by the Company's customers and
competitors and the loss of his continued efforts to a competitor would be
detrimental to the Company's ongoing success and future prospects;
WHEREAS, pursuant to that certain Agreement and Plan of Merger ("Merger
Agreement") dated as of August 5, 1999, by and among Parent, the Company, MAC
Merger Corporation, a Virginia corporation and a subsidiary of Parent ("Merger
Sub"), and McNichols, the Company will be merged into Merger Sub; and
WHEREAS, McNichols will receive substantial direct and indirect
benefit, from the transactions contemplated by the Merger Agreement, and Parent
has required that McNichols enter into this Agreement as a condition to Parent's
consummation of the transactions contemplated by the Merger Agreement.
WHEREAS, in connection with the transactions contemplated by the Merger
Agreement, McNichols has agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms
have the following meanings. Capitalized terms not otherwise defined have the
meaning given such terms in the Merger Agreement.
(a) "Affiliate" shall mean with respect to any Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, through
the exercise of voting securities or otherwise, such Person.
<PAGE>
(b) "Person" shall mean any individual, corporation, partnership,
trust, organization, or other entity.
(c) "Proprietary Information" shall mean confidential, proprietary
or trade secret information of any kind, nature or description.
(d) "Restricted Area" shall mean (i) each metropolitan area or
place within the United States in which Parent, the Company or any of
their Affiliates has an office conducting the Restricted Business and
(ii) a radius of 100 miles from each such metropolitan area or place
and (iii) a further radius of 500 miles from such metropolitan area or
place and (iv) elsewhere in the United States and (v) elsewhere in the
world.
(e) "Restricted Business" includes any business competitive with
the Current Business as well as any business or businesses in which
Parent or any of its Affiliates is involved while McNichols is engaged
by Parent, the Company or any of their Affiliates as an employee,
officer or consultant.
(f) "Restricted Period" means a period commencing on the date
hereof and continuing through the third (3rd) anniversary date of this
Agreement.
2. Compensation. In consideration of McNichols' obligations hereunder,
Parent shall pay to McNichols, and McNichols shall accept from Parent in full
payment therefor, the sum of six hundred thousand dollars ($600,000) payable in
two equal annual installments of three hundred thousand dollars ($300,000), on
the second and third anniversary of the date hereof.
3. Nondisclosure of Information. McNichols agrees that during and after
the Restricted Period he shall not, without the prior written consent of an
officer of Parent or except within the scope of his duties for Parent, the
Company or any of their Affiliates, directly or indirectly, in any individual,
corporate or representative capacity whatsoever, (i) use or (ii) reveal,
divulge, disclose or otherwise communicate to any person, firm, association,
corporation or other entity in any manner whatsoever, Proprietary Information
concerning any matters affecting or relating to Restricted Business. McNichols
shall not be liable pursuant to this Section 3 or disclosures as to (a)
information that is or becomes generally available to the public other than as a
result of a disclosure by McNichols, (b) information which is received from a
third party provided that such source is not known by McNichols to be bound by a
confidentiality agreement, or other obligation of secrecy, to Parent, the
Company or any of their Affiliates, or (c) information compelled to be disclosed
by legal process. The following are some examples of Proprietary Information,
even if not marked or identified as such:
(a) 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;
(b) 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;
2
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(c) 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;
(d) 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;
(e) 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
(f) All ideas which are derived from access to or knowledge of any
of the above.
4. Covenant Not to Compete. McNichols agrees that during the Restricted
Period, he shall not, without the prior written consent of an officer of Parent
or except within the scope of his duties for Parent, the Company or any of their
Affiliates, directly or indirectly, through any corporation, organization or
other entity owned or controlled by McNichols, or either as principal, agent,
employee, employer, consultant, stockholder or holder of any equity security
(except for an equity interest in any corporation that does not exceed five
percent (5%) of any class of its stock), partner or in any other individual or
representative capacity whatsoever:
(a) engage in any business competitive in any respect to the
Restricted Business of Parent, the Company or any of their Affiliates
in the Restricted Area;
(b) participate in the ownership, management, operation or control
of any person or entity that is engaged in any business competitive
with the Restricted Business in the Restricted Area;
(c) call upon, solicit, divert, take away or attempt to call upon,
solicit, divert or take away any existing clients or past, present or
targeted potential clients, customers, suppliers, businesses or
accounts of the Restricted Business or any portion thereof, in the
Restricted Area or interfere or compete with any portion of the
Restricted Business;
(d) hire, or knowingly attempt to hire, contact or solicit with
respect to hiring, any present employee, director, manager, officer,
contractor or consultant of Parent, the Company or any of their
Affiliates in the Restricted Area (including any person who acted in
such capacity within the one year prior to any such hiring, contact or
solicitation);
(e) give any advice relating to the Restricted Business to any
person or entity engaged in any business competitive in any respect
with the Restricted Business or Parent, the Company or any of their
Affiliates in the Restricted Area; or
(f) lend credit, money or reputation for the purpose of
establishing or operating any business competitive with the Restricted
Business in the Restricted Area.
3
<PAGE>
If, at any time during the Restricted Period, McNichols fails or has
failed to fully comply with the terms of this Section 4, Parent and the Company
shall each be entitled to, among other remedies, require compliance by McNichols
with the terms of this Section 4 for an additional period equal to the period of
such noncompliance. McNichols hereby acknowledges that the geographic
boundaries, scope of prohibited activities and the time duration of the
provisions of this Section 4 are reasonable and are not broader than are
necessary to maintain the goodwill associated with the Company's business and
the Restricted Business.
5. Enforcement of Covenants. McNichols acknowledges the confidential
and secret nature of the Company's Proprietary Information and the considerable
time, expense and other resources devoted by the Company, Parent and their
Affiliates to the development or acquisition of such Proprietary Information.
McNichols also acknowledges that a violation or attempted violation, on his part
or on the part of any of his Affiliates, of any provision of Sections 3 or 4
above will cause such damage to Parent and the Company as will be irreparable
and that the remedy at law will be inadequate, and accordingly, McNichols agrees
that Parent and the Company shall be entitled to an injunction, without posting
bond or any other security, from any court of competent jurisdiction,
restraining any further violation or threatened or attempted violation of such
provisions by McNichols or his Affiliates. Any exercise by Parent or the Company
of its rights pursuant to this Section 5 shall be cumulative and in addition to
any other remedies to which Parent and the Company may be entitled.
6. Reformation of Sections 3 and 4. Parent and the Company and
McNichols agree and stipulate that the covenants contained in Sections 3 and 4
hereof are fair and reasonable in light of all of the facts and circumstances of
the relationship among Parent and the Company and McNichols; however, Parent and
the Company and McNichols are aware that in certain circumstances courts have
refused to enforce certain agreements not to compete. Therefore, in furtherance
of and not in derogation of the provisions of Sections 3 and 4 hereof, the
parties agree that in the event a court should decline to enforce the provisions
of Sections 3 and 4, that Sections 3 and 4 shall be deemed to be modified or
reformed to restrict McNichols' competition with the Parent, Company or any of
their Affiliates to the maximum extent as to time, geography and business scope,
which the court shall find enforceable. For the purposes of this Agreement,
Parent and the Company and McNichols agree that the covenants contained in
Sections 4(a) through (f) shall each be construed as a series of separate
covenants, one for each geographical subdivision which comprises the Restricted
Area and, except for geographic coverage, each separate covenant shall be deemed
identical.
7. Indemnification. From and after the date hereof, McNichols shall
indemnify, defend and hold Parent, the Company and their Affiliates harmless
from and against any and all claims, losses, damages, costs and expenses that
may be incurred by, imposed upon or asserted by or against such parties arising
from any breach of the provisions of this Agreement by McNichols.
8. Invalid Provisions. If any provision hereof (other than Sections 3
and 4) is held to be illegal, invalid or unenforceable under present or future
laws, such provisions shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal,
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invalid or unenforceable provision there shall be added automatically as a part
hereof a provision as similar in the terms, but in any event no more restrictive
than, such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
9. Waiver of Breach. The failure by any party to enforce any of its
rights hereunder shall not be deemed to be a waiver of such rights, unless such
wavier is an express written waiver which has been signed by the waiving party.
Waiver of any one breach shall not be deemed to be a waiver of any other breach
of the same or any other provisions hereof.
10. No Right to Continued Employment. The parties hereto agree that
this Agreement is not a contract of employment and is entered into solely in
connection with the desire of Parent and the Company to maintain the goodwill
associated with the Company's business and the Related Business. No provision of
this Agreement shall be construed to create any right of McNichols to be
employed or engaged by the Company as an employee, officer, director, consultant
or otherwise for any term.
11. Amendments. No modifications or amendments of any of the terms,
conditions or provisions of this Agreement may be made other than by written
agreement signed by the parties.
12. Assignment. This Agreement, and the respective rights and
obligations of the parties hereto, may not be transferred, assigned or pledged
by any party hereto without the prior written consent of the other parties
hereto.
13. Benefit and Burden. This Agreement shall inure to be benefit of,
and shall be binding upon, the parties hereto and their respective legatees,
distributees, estates, executors, administrators, personal representatives,
heirs, successors and permitted assigns. McNichols acknowledges and agrees that
Parent and the Company and their Affiliates are intended beneficiaries of the
covenants contained in Sections 3 and 4 of this Agreement.
14. Captions. The captions and headings used in this Agreement are for
convenience only and do not in any way limit or amplify the terms and provisions
hereof.
15. GOVERNING LAW. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS AND THE DETERMINATION OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF VIRGINIA WITHOUT REGARD TO THE CHOICE OF LAW RULES OF SUCH
JURISDICTION.
16. Settlement of Disputes. Any and all controversies, disputes, or
claims arising out of or relating to this Agreement, or any part hereof,
including, without limitation, the meaning, applicability, or scope of this
Section 16 and the performance, breach, interpretation, meaning, construction,
or enforceability of this Agreement, or any portion hereof, and all claims for
rescission or fraud in the inducement of this Agreement, shall, at the request
of any party, be settled or resolved by binding arbitration pursuant to the
commercial rules and regulations of the American Arbitration Association (the
"AAA") for the resolution of commercial disputes. Any party requesting
arbitration under this Agreement shall make a demand on the other parties by
registered or certified mail with a copy to the AAA. The parties consent and
agree to have any such arbitration proceedings heard in Vienna, Virginia. The
arbitration shall take place
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regardless of whether any party to the dispute or controversy fails or refuses
to participate. The arbitrators shall apply Virginia substantive law and federal
substantive law where state law is preempted. The arbitrators shall have the
power to grant all legal and equitable remedies and award compensatory damages
provided by Virginia law. The arbitrators shall prepare in writing and provide
to the parties an award including factual findings and the reasons on which the
decision is based. Judgement upon any award may be entered in any court having
jurisdiction thereof.
17. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and all
of which shall be deemed collectively to be one agreement.
[The balance of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of September 1, 1999.
GRC INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
MANAGEMENT CONSULTING &
RESEARCH, INC.
By:
--------------------------------------
Name:
Title:
-----------------------------------------
Gerald R. McNichols, Ph.D.
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.
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Section 9. Shareholder Proposals
---------------------
Prior to an annual shareholder meeting at which a shareholder or shareholders
propose a matter to be voted upon by the shareholders, other than a matter
relating to the nomination for election of directors pursuant to Article III,
Section 4 of these Bylaws, the shareholder or shareholders that wish to make
such proposal are required to provide notice to the Corporation of the intention
to make such proposal no later than 120 days prior to the anniversary date of
the initial mailing of proxy materials by the Corporation in connection with the
immediately preceding annual meeting.
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.
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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.
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.
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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.
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.
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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 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
6
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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, 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.
7
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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.
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.
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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.
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
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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.
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
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<PAGE>
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 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.
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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 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.
September 17, 1998
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 and outside directors.
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.
2.11. "Grant Date" means the date as of which an Option is granted by
the Committee pursuant to the Plan.
<PAGE>
2.12. "Option" means any stock option granted pursuant to the terms of
the Plan.
2.13. "Option Agreement" means the agreement executed between the
Company and the Optionee relating to the Option.
2.14. "Option Price" means the purchase price of shares of Stock
subject to an Option.
2.15. "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.
2.16. "Optionee" means any employee or outside director of the Company
or a Related Corporation who is granted an Option pursuant to the Plan.
2.17. "Plan" means the GRC International, Inc. 1998 Option Plan.
2.18. "Related Corporation" means any parent or subsidiary corporation,
as defined in Section 424 of the Code.
2.19. "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.
2.20. "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 1,550,000 shares of
Stock, unless such number of shares is adjusted as provided in Section 10. If
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. If 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.
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.
2
<PAGE>
4.2. Powers of Committee. The Committee has full and final authority in
its sole discretion to:
(i) grant Options from time to time;
(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.
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.
3
<PAGE>
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.
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 of employment.
4
<PAGE>
7.1.2. If any Related Corporation or division of the Company is
sold or any other transaction occurs as a result of which an Optionee is no
longer an employee or director 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.
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 or
directorship between the Company or a Related Corporation and the Optionee, or
as a contractual right to continue as an employee or director 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.
10. STOCK ADJUSTMENT
10.1. Changes in Capital Structure. If 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
5
<PAGE>
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.
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
6
<PAGE>
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 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
7
<PAGE>
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 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.
GRC INTERNATIONAL, INC.
CASH COMPENSATION REPLACEMENT PLAN
1. PURPOSE
The loyal and dedicated service of key executives is essential to the
growth and progress of any public company. Accordingly, the Cash Compensation
Replacement Plan (the "Plan") of GRC International, Inc. (the "Company") has
been adopted to better enable the Company to retain and attract qualified key
executives, while reducing the Company's cash outlay for executive compensation.
The Plan is also designed to provide a stronger nexus between the contributions
made to the Company by its key executives and the value of the compensation they
receive.
2. ADMINISTRATION
The Plan will be administered on a calendar quarter basis. The Plan
will be administered by a committee of three or more persons (the "Committee").
Such persons shall not be eligible to participate in the Plan, and will be
appointed by the Board of Directors of the Company. Awards of the Company's
Common Stock, par value $.10 per share ("Stock"), and options to purchase the
Stock ("Options"), and the amount and nature of the Stock and Options so
awarded, will be automatic, as provided in Sections 5 and 6 of the Plan. All
questions of interpretation of the Plan will be determined by the Committee.
Such determinations will be final and binding upon all persons having an
interest in the Plan.
3. PARTICIPATION IN THE PLAN
Employees of the Company (or subsidiaries thereof) who are determined
by the Committee to be "key executives" for the purposes of this Plan, whether
or not such employees are officers of the Company or any subsidiary of the
Company, are eligible to participate in the Plan. A list of such eligible
executives will be established by majority vote of the Committee, with such list
to be revised as necessary. In determining which executives may participate in
the Plan, the Committee may take into account the nature of the services
rendered by such executives, their present and potential contributions to the
Company's success, and such other factors as the Committee in its discretion
deems relevant. Options available under the Plan may be granted to key
executives who have received options under other plans and/or may be eligible to
do so in the future.
4. STOCK SUBJECT TO THE PLAN
4.1. Total Shares Available. Up to two hundred ninety thousand
(290,000) shares (subject to adjustment under Section 8 of the Plan) of Stock
are authorized for issuance under the Plan. Such shares of Stock may be issued
(i) outright, or (ii) upon the exercise of Options. The total number of shares
of Stock awarded under (i) and (ii) shall not exceed 290,000 (subject to
adjustment). The Company may issue authorized but unissued shares of its Stock,
may repurchase shares in the open market or in private transactions, or may
otherwise make a sufficient number of shares available under the Plan. The
Company shall not be required to reserve or otherwise set aside funds or shares
of Stock for the payment of its obligations hereunder. The Company shall make
available as and when required a sufficient number of shares of Stock to meet
the needs of the Plan.
4.2. Unexercised or Expired Options. Upon the expiration or termination
of any Option under the Plan, the Stock allocable to the unexercised or
surrendered portion of such
<PAGE>
Option will revert to the Plan's pool of Stock, and shall be available for other
awards of Stock and Options under the Plan.
5. AWARDS OF STOCK
5.1. Fair Market Value of Stock. For purposes of determining the number
of shares of Stock to be awarded with respect to any calendar quarter, the fair
market value of the Stock shall be the average of the high and low sale prices
of the Stock quoted on the New York Stock Exchange Composite Transaction
Reporting System for the Fridays of such quarter ("Quarterly Fair Market
Value"). If such sale prices are not available for any such Friday, then the
average of the high and low sale prices on the next preceding day on which such
sale prices are available shall be used in lieu thereof.
5.2. Election. Quarterly awards of Stock will be made to each eligible
key executive who has submitted to the Committee at least 5 days prior to the
beginning of the calendar quarter in question a written election to receive
Stock in lieu of up to twenty five percent (25%) of salary and up to one hundred
percent (100%) of bonus payable during such quarter. In the case of a newly
hired officer, such election may be effective immediately if received within a
reasonable time after the commencement of the officer's employment with the
Company. Each such election shall be effective until revoked by a later written
election, but no such later election shall become effective until the first
calendar quarter to begin at least 5 days after the later election is received
by the Company. The amount of salary and bonus to be applied to Stock awards, in
accordance with a key executive's election, shall be the "Stock Award
Compensation".
5.3. Stock Awards and Formula. Shortly after the end of each calendar
quarter, there shall be awarded to each key executive who has previously
submitted an appropriate election in accordance with Section 5.2 above, the
nearest whole number of shares of Stock which most closely approximates the key
executive's Stock Award Compensation for the quarter in accordance with the
following formula:
[1.25] X [Key Executive's Stock Award Compensation for the Quarter] = Number of
- -------------------------------------------------------------------
Quarterly Fair Market Value Shares of Stock
5.4. Payment of Tax Withholding Obligations. The amount required to be
withheld under applicable income tax laws in connection with any award of Stock
under the Plan shall be paid by the Company's retention of shares from the
shares of Stock to be awarded. Shares of Stock used to make such tax withholding
payments shall be valued at the average of the high and low sale prices of the
Stock quoted on the New York Stock Exchange Composite Transaction Reporting
System on the date of award (or if unavailable on such date, on the next
preceding trading date), and the number of shares to be required for payments
shall be rounded up or down to the nearest whole share so that no cash payment
to the Company shall be required by reason of any fractional amount.
6. AWARDS OF OPTIONS
All Options awarded under the Plan will be "non-statutory options," and
therefore are not entitled to special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as it may be amended from time to time (the
"Code"). Each Option awarded under the Plan will be evidenced by a written
agreement in such form as the Committee may from time to time approve,
consistent with and subject to the following terms and conditions:
2
<PAGE>
6.1. Exercise Price of Options. The exercise price of Options to be
awarded with respect to any calendar quarter shall be twenty five percent (25%)
of the Quarterly Fair Market Value for such quarter.
6.2. Election. Quarterly awards of Options will be made to each
eligible key executive who has submitted to the Committee at least 5 days prior
to the beginning of the calendar quarter in question a written election to
receive Options in lieu of up to twenty five percent (25%) of salary and up to
one hundred percent (100%) of bonus payable during such quarter. In the case of
a newly hired officer, such election may be effective immediately if received
within a reasonable time after the commencement of the officer's employment with
the Company. Each such election shall be effective until revoked by a later
written election, but no such later election shall become effective until the
first calendar quarter to begin at least 5 days after the later election is
received by the Company. The amount of salary and bonus to be applied to Option
awards, in accordance with a key executive's election, shall be the "Option
Award Compensation".
6.3. Option Awards and Formula. As of the end of each calendar quarter,
there shall be awarded to each key executive who has previously submitted an
appropriate election in accordance with Section 6.2 above, the nearest whole
number of Options which most closely approximates the key executive's Option
Award Compensation for the quarter in accordance with the following formula:
[1.25] X [Key Executive's Option Award Compensation for the Quarter] = Number
- -------------------------------------------------------------------
(Quarterly Fair Market Value) Minus (Exercise Price of Options) of Options
6.4. Period of Option. Options awarded under the Plan become
exercisable in increments. Eighty percent (80%) of each Option is exercisable
immediately; ten percent (10%) of each Option shall become exercisable on or
after the second anniversary of the date on which it was awarded; five percent
(5%) of each Option shall become exercisable on or after the third anniversary
of such date; and five percent (5%) of each Option shall become exercisable on
or after the fourth anniversary of such date; provided, however, that any Option
awarded pursuant to the Plan will become exercisable in full upon the death or
disability of the key executive.
6.5. Exercise of Options.
(a) To exercise an Option in whole or in part, the holder of an
Option ("Optionee") shall give written notice of exercise to the Company's Stock
Option Administrator specifying the number of shares as to which the Option is
being exercised, accompanied by payment in full of the Option Price for such
shares either in cash or in such other consideration as approved by the
Committee in its sole discretion including, but not limited to, (i) shares of
previously owned Common Stock which, if acquired by exercise of an option, have
been held by the Optionee for at least six (6) months, or (ii) in the event of
hardship and with the advance approval of the Committee, the Company's retention
of shares of Common Stock otherwise issuable to the Optionee upon exercise.
Shares of Stock used to make payments under (i) and (ii) shall be valued at the
average of the high and low sale prices of the Stock quoted on the New York
Stock Exchange Composite Transaction Reporting System on the date such notice is
received by the Stock Option Administrator (or if unavailable on such date, on
the next preceding trading date), and the number of shares to be required for
payments under (I) or (ii)
3
<PAGE>
shall be rounded up or down to the nearest whole share so that no cash payment
shall be required by reason of any fractional amount.
(b) Notwithstanding any other provision in this Plan to the
contrary, no Option may be exercised at a time or in a manner which could result
in the loss of any tax deduction for the Company under Section 162(m) of the
Code.
6.6. Elections to Pay Withholding Taxes. Any key executive may pay the
amount of any federal, state or local taxes required by law to be withheld in
connection with the exercise of an Option, as well as any additional taxes on
the exercise up to the key executive's marginal rate, either in cash or in such
other consideration as approved by the Committee in its sole discretion
including, but not limited to (i) shares of previously owned Stock, or (ii) the
Company's retention of shares of Stock otherwise issuable to the key executive
upon exercise; provided that only the amount of taxes required to be withheld by
law may be paid pursuant to (ii). Shares of Stock used to make payments under
(i) and (ii) shall be valued at the average of the high and low sale prices of
the Stock quoted on the New York Stock Exchange Composite Transaction Reporting
System on the date the exercise notice is received by the Company's Stock Option
Administrator, and the number of shares to be required for payments under (i) or
(ii) shall be rounded up or down to the nearest whole share so that no cash
payment shall be required by reason of any fractional amount.
6.7. Termination of Options.
----------------------
(a) Options awarded pursuant to the Plan may not be exercised
after the third anniversary of a key executive's termination as an employee for
any reason, including, but not limited to, such key executive's resignation or
voluntary departure from the Company, involuntary termination by the Company of
such key executive's employment, or termination of employment by reason of
death, disability or retirement. Any Options which have not been exercised on or
before such third anniversary shall thereupon expire, except as provided in
subsection (b) below.
(b) Any Option granted a key executive under the Plan and
unexercised, in whole or in part, on the date of his death may be exercised by
the personal representative of the deceased key executive's estate, or by any
heir, devisee, or other taker who, by will or operation of law, is entitled to
said Option or any portion thereof. In each such case, such Option(s) may be
exercised at any time on or before the third anniversary of the earlier of the
key executive's termination of employment or death, as provided in subsection
(a) above.
(c) Options awarded pursuant to the Plan shall have no stated
or other expiration date except as provide in this Section 6.7. Such Options are
not forfeitable in the event of termination of employment or otherwise.
6.8. No Shareholder Rights By Reason of Options. A key executive shall
not have any rights whatsoever as a shareholder with respect to any unexercised
Option until the Option has been duly exercised in accordance with the
procedures approved from time to time by the Committee. No adjustment will be
made for dividends or other rights with respect to which the record date occurs
prior to the date the Option has been duly exercised.
6.9. Options Not Assignable Or Transferable. Options awarded under the
Plan are not assignable or transferable other than by will or by the laws of
intestate succession. During the lifetime of a key executive, Options awarded
under the Plan will be exercisable only by that key executive.
7. LIMITATION OF RIGHTS
4
<PAGE>
7.1. No Right to Continue as an Employee. Neither the Plan, the
awarding of any Stock or Option, nor any other action taken pursuant to the Plan
constitutes or is evidence of any agreement or understanding, express or
implied, that the Company will retain a key executive for any period of time or
at any particular rate of compensation.
7.2. No Rights to Receive Stock or Options After Eligibility Ceases. A
key executive has no rights to receive Stock or Options under the Plan, and will
not receive any Stock or Options, with respect to any calendar quarter, or part
thereof, in which he or she is no longer considered by the Committee to be a
"key executive".
7.3. Limitation on Rights of Optionee. Except as expressly provided in
Section 8, an Optionee shall have no rights by reason of the issuance by the
Company to any other person of (i) shares of Stock pursuant to this Plan, (ii)
additional shares of Stock, (iii) any other security or debenture convertible
into Stock, (iv) or any other equity security, including issuance pursuant to a
plan of merger, consolidation, or statutory share exchange, and no adjustment by
reason thereof shall be made with respect to the number of shares of Stock
subject to an Option or the exercise price.
7.4. Rights of the Company. The grant of an Option pursuant to the Plan
shall not affect in any way the right or power of the Company to issue
additional shares of Stock or other securities; to make adjustments,
reclassifications, reorganizations or changes in its capital or business
structure; to participate in a merger, consolidation, or share exchange with
another corporation; or to dissolve, liquidate, or sell or transfer all or any
part of its business or assets.
8. ADJUSTMENTS
In the event any change is made to the Stock by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or
otherwise, including but not limited to any change whereby the Stock is
converted into or exchanged for another class of shares or shares of another
entity, appropriate and comparable adjustments will be made to the number and
kind of shares subject to the Plan, and to the number and kind of shares and
price per share of Stock subject to outstanding Options issued pursuant to the
Plan, and to the prices of Stock used in calculating the Quarterly Fair Market
Value of the Stock. All such adjustments will be made in such a manner as avoids
dilution or enlargement of the rights of key executives under the Plan.
9. AMENDMENT OF THE PLAN
The Board of Directors of the Company may suspend or terminate the Plan
or revise or amend it in any respect whatsoever; provided that, without approval
of the shareholders of the Company, no revision or amendment may change the
number of shares subject to the Plan (except as provided in Section 8 of the
Plan) or materially increase the benefits accruing to participants under the
Plan, and provided further that no revision or amendment or termination shall,
without the consent of the affected key executive(s), impair the rights of any
key executive under any Option previously awarded.
10. LEGAL RESTRICTIONS
The Company will not be obligated to issue shares of Stock if counsel
to the Company determines that such issuance would violate any law or regulation
of any governmental authority or any agreement between the Company and any
national securities exchange upon which the Stock is listed. In connection with
any stock issuance or transfer, the person acquiring the shares shall, if
requested by the Company, give assurances satisfactory to counsel to the Company
regarding such matters as the Company may deem desirable to
5
<PAGE>
assure compliance with all legal requirements. The Company shall in no event be
obliged to take any action in order to cause the exercise of any Option.
11. RULE 16b-3 COMPLIANCE
11.1. Six-Month Holding Period. Unless an Optionee could otherwise
dispose of equity securities, including derivative securities, acquired under
the Plan without incurring liability under Section 16(b) of the Exchange Act,
equity securities acquired under the Plan must be held for a period of six
months following the date of such acquisition, provided that this condition
shall be satisfied with respect to a derivative security if at least six months
elapse from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or conversion)
or its underlying equity security.
11.2. Other Compliance Provisions. With respect to an Optionee who is a
director, officer or ten percent beneficial owner of the Company, as those terms
are used in Section 16 of the Exchange Act. (such person is hereinafter referred
to as a "Section 16 Optionee"), the Committee shall implement transactions under
the Plan and administer the Plan in a manner that will ensure that each
transaction by such Optionee is exempt from liability under Rule 16b-3, except
that such Optionee may be permitted to engage in a non-exempt transaction under
the Plan if written notice has been given to the Optionee regarding the
non-exempt nature of the transaction. The Committee may authorize the Company to
repurchase any Option or shares of Stock acquired under the Plan in order to
prevent a Section 16 Optionee from incurring liability under Section 16(b).
Unless otherwise specified by the Optionee, equity securities, including
derivative securities, acquired under the Plan which are disposed of by an
Optionee shall be deemed to be disposed of in the order acquired by the
Optionee.
12. GOVERNING LAW
The Plan will be governed, and its provisions construed, in accordance
with the laws of the State of Delaware and applicable federal law, without
regard to conflicts of law.
GRC INTERNATIONAL, INC.
DIRECTORS FEE REPLACEMENT PLAN
1. PURPOSE
The loyal and dedicated service of "outside" directors is essential to
the growth and progress of any public company. Accordingly, the Directors Fee
Replacement Plan (the "Plan") of GRC International, Inc. (the "Company") has
been adopted to better enable the Company to retain and attract qualified
outside directors to serve on the Company's Board of Directors, while reducing
the Company's cash outlay of director's fees. The Plan is also designed to
provide a stronger nexus between the contributions made to the Company by its
outside directors and the value of the compensation they receive.
2. ADMINISTRATION
The Plan will be administered on a calendar quarter basis. The Plan
will be administered by a committee of three or more persons (the "Committee")
who will be appointed by the Board of Directors of the Company. Awards of the
Company's Common Stock, par value $.10 per share ("Stock"), and options to
purchase the Stock ("Options"), and the amount and nature of the Stock and
Options so awarded, will be automatic, as provided in Sections 5 and 6 of the
Plan. All questions of interpretation of the Plan will be determined by the
Committee. Such determinations will be final and binding upon all persons having
an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors who are not employees of the Company or any subsidiary of the
Company are eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
4.1. Total Shares Available. Up to three hundred thousand (300,000)
shares (subject to adjustment under Section 11 of the Plan) of Stock are
authorized for issuance under the Plan. Such shares of Stock may be issued (i)
outright, or (ii) upon the exercise of Options. The total number of shares of
Stock awarded under (i) and (ii) shall not exceed 300,000. The Company may issue
authorized but unissued shares of its Stock, may repurchase shares in the open
market or in private transactions, or may otherwise make a sufficient number of
shares available under the Plan. The Company shall not be required to reserve or
otherwise set aside funds or shares of Stock for the payment of its obligations
hereunder. The Company shall make available as and when required a sufficient
number of shares of Stock to meet the needs of the Plan.
4.2. Unexercised or Expired Options. Upon the expiration or termination
of any Option under the Plan, the Stock allocable to the unexercised or
surrendered portion of such Option will revert to the Plan's pool of Stock, and
may thereupon become subject to Stock and Options subsequently awarded under the
Plan.
5. AWARDS OF STOCK
5.1. Fair Market Value of Stock. For purposes of determining the number
of shares of Stock to be awarded with respect to any calendar quarter, the Fair
Market Value of the Stock shall be the average of the high and low sale prices
of the Stock quoted on the New York Stock Exchange Composite Transaction
Reporting System for the Fridays of such quarter. If such sale prices are not
available for any such Friday, then the average of the high and low sale prices
on the next preceding day on which such sale prices are available shall be used
in lieu thereof. <PAGE>
5.2. Election. Quarterly awards of Stock will be made to each eligible
director who has submitted to the Committee at least 5 days prior to the
beginning of the calendar quarter in question a written election to receive
Stock in lieu of all or any part of the compensation which is not being deferred
under any other plan and which otherwise would have been payable currently for
services rendered as a director (including the director's retainer and meeting
fees) and, where applicable, as Chairman. In the case of a new director, such
election may be effective immediately if received within a reasonable time after
the director's election. Each such election shall be effective until revoked by
a later written election, but no such later election shall become effective
until the first calendar quarter to begin at least 5 days after the later
election is received by the Company.
5.3. Stock Awards and Formula. Shortly after the end of each calendar
quarter, a director who has previously submitted an appropriate election to
receive Stock in accordance with Section 5.2 above shall receive a combination
of Stock and cash. One-half (1/2) of the director's compensation for the quarter
shall be payable in cash, and one-half (1/2) shall be payable in Stock. The
number of shares of Stock to be awarded shall be the nearest whole number which
most closely approximates the director's compensation for the quarter in
accordance with the following formula:
One-Half (1/2) of Director's Number
Applicable Compensation for the Quarter = of Shares
--------------------------------------- of Stock
Fair Market Value of Stock
6. AWARDS OF OPTIONS
All Options awarded under the Plan will be "non-statutory options," and
therefore are not entitled to special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as it may be amended from time to time (the
"Code"). Each Option awarded under the Plan will be evidenced by a written
agreement in such form as the Committee may from time to time approve,
consistent with and subject to the following terms and conditions:
6.1. Fair Market Value of Stock. For purposes of determining the number
of Options to be awarded with respect to any calendar quarter, the Fair Market
Value of the Stock for such quarter shall be the average of the high and low
sale prices of the Stock quoted on the New York Stock Exchange Composite
Transaction Reporting System for the Fridays of such quarter. If such sale
prices are not available for any such Friday, then the average of the high and
low sale prices on the next preceding day on which such sale prices are
available shall be used in lieu thereof.
6.2. Exercise Price of Options. The exercise price of Options to be
awarded with respect to any calendar quarter shall be twenty five percent (25%)
of the Fair Market Value of the Stock for such quarter.
6.3. Election. Quarterly awards of Options will be made to each
eligible director who has submitted to the Committee at least 5 days prior to
the beginning of the calendar quarter in question a written election to receive
Options in lieu of all or any part of the compensation which is not being
deferred under any other plan and which otherwise would have been payable
currently for services rendered as a director (including the director's retainer
and meeting fees) and, where applicable, as Chairman. In the case of a new
director, such election may be effective immediately if received within a
reasonable time after the director's election. Each such election shall be
effective until revoked by a later written election, but no such later election
shall become effective until the first calendar quarter to begin at least 5 days
after the later election is received by the Company.
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<PAGE>
6.4. Option Awards and Formula. As of the end of each calendar quarter,
there shall be awarded to each director who has previously submitted an
appropriate election in accordance with Section 6.3 above the nearest whole
number of Options which most closely approximates the director's compensation
for the quarter in accordance with the following formula:
Director's Applicable Compensation for the Quarter = Number
------------------------------------------------- of Options
(Fair Market Value of Stock) Minus (Exercise Price of Options)
6.5. Exercise of Options. Options may be exercised at any time after
their grant. To exercise an Option in whole or in part, the holder of an Option
("Optionee") shall give written notice of exercise to the Company's Stock Option
Administrator specifying the number of shares as to which the Option is being
exercised, accompanied by payment in full of the Option Price for such shares
either in cash or in such other consideration as approved by the Committee in
its sole discretion including, but not limited to, (i) shares of previously
owned Common Stock held by the Optionee for at least six (6) months, or (ii) in
the event of hardship and with the advance approval of the Committee, the
Company's retention of shares of Common Stock otherwise issuable to the Optionee
upon exercise. Shares of Stock used to make payments under subsections (ii) and
(iii) shall be valued at the average of the high and low sale prices of the
Stock quoted on the New York Stock Exchange Composite Transaction Reporting
System on the date such notice is received by the Stock Option Administrator (or
if unavailable on such date, on the next preceding trading date), and the number
of shares to be required for payments under (Ii) or (iii) shall be rounded to
the nearest whole share so that no cash payment shall be required by reason of
any fractional amount.
6.6. Termination of Options.
----------------------
(a) Options awarded pursuant to the Plan may not be exercised
after the third anniversary of a director's termination as a director for any
reason, including, but not limited to, such director's resignation or cessation
of service following a decision not to stand for reelection, or his termination
as a director due to removal, death, disability or retirement. Any Options which
have not been exercised on or before such third anniversary shall thereupon
expire.
(b) Any Option awarded a director under the Plan and
unexercised, in whole or in part, on the date of his death may be exercised by
the personal representative of the deceased director's estate, or by any heir,
devisee, or other taker who, by will or operation of law, is entitled to said
Option or any portion thereof. In each such case, such Option(s) may be
exercised at any time on or before the third anniversary of the director's
death, as provided in Section 6.6(a).
6.7. No Shareholder Rights By Reason of Options. A director does not
have any rights whatsoever as a shareholder with respect to any unexercised
Option until the date of the issuance to that director of a stock certificate(s)
for shares to be issued upon the proper exercise of said Option. No adjustment
will be made for dividends or other rights with respect to which the record date
occurs prior to the date such certificate is issued.
6.8. Options Not Assignable Or Transferable. Options awarded under the
Plan are not assignable or transferable other than by will or by the laws of
intestate succession. During the lifetime of a director, Options awarded under
the Plan will be exercisable only by that director.
3
<PAGE>
7. LIMITATION OF RIGHTS
7.1. No Right to Continue as a Director. Neither the Plan, the awarding
of any Stock or Option, nor any other action taken pursuant to the Plan
constitutes or is evidence of any agreement or understanding, express or
implied, that the Company will retain a director for any period of time or at
any particular rate of compensation.
7.2. No Rights to Receive Stock or Options After Eligibility Ceases. A
director has no rights to receive Stock or Options under the Plan, and will not
receive any Stock or Options for any calendar quarter, or part thereof, once he
or she: (i) becomes an employee of the Company or any subsidiary of the Company;
or (ii) ceases to be a director.
7.3. Limitation on Rights of Optionee. Except as expressly provided in
Section 9, an Optionee shall have no rights by reason of the issuance of (i)
shares of Stock pursuant to this Plan, (ii) additional shares of Stock, (iii)
any other security or debenture convertible into Stock, (iv) or any other equity
security, including issuance pursuant to a plan of merger, consolidation, or
statutory share exchange, and no adjustment by reason thereof shall be made with
respect to the number of shares of Stock subject to an Option or the exercise
price.
7.4. Rights of the Company. The grant of an Option pursuant to the Plan
shall not affect in any way the right or power of the Company to issue
additional shares of stock; to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure; to participate
in a merger, consolidation, or share exchange with another corporation; or to
dissolve, liquidate, or sell or transfer all or any part of its business or
assets.
8. ADJUSTMENTS
In the event any change is made to the Stock by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or
otherwise, including but not limited to any change whereby the Stock is
converted into or exchanged for another class of shares or shares of another
entity, appropriate and comparable adjustments will be made to the number and
kind of shares subject to the Plan, and to the number and kind of shares and
price per share of Stock subject to outstanding Options issued pursuant to the
Plan, and the prices of Stock used in calculating the Fair Market Value of the
Stock under Sections 5.1 and 6.1. All such adjustments will be made in such a
manner as avoids dilution or enlargement of the rights of directors under the
Plan.
9. AMENDMENT OF THE PLAN
The Board of Directors of the Company may suspend or terminate the Plan
or revise or amend it in any respect whatsoever; provided that, without approval
of the shareholders of the Company, no revision or amendment may change the
number of shares subject to the Plan (except as provided in Section 9 of the
Plan) or materially increase the benefits accruing to participants under the
Plan, and provided further that no revision or amendment or termination shall,
without the consent of the affected director(s), impair the rights of any
director under any Option previously awarded.
10. LEGAL RESTRICTIONS
(a) The Company will not be obligated to issue shares of Stock if
counsel to the Company determines that such issuance would violate any law or
regulation of any governmental authority or any agreement between the Company
and any national securities exchange upon which the Stock is listed. In
connection with any stock issuance or transfer, the person acquiring the shares
shall, if requested by the Company, give assurances satisfactory to
4
<PAGE>
counsel by the Company regarding such matters as the Company may deem desirable
to assure compliance with all legal requirements. The Company shall in no event
be obliged to take any action in order to cause the exercise of any Option.
(b) Of the 150,000 new shares added to the Plan on January 28, 1999, no
single director may acquire from these new shares more than 102,378 shares,
which is one percent of the shares outstanding as of January 28, 1999.
11. RULE 16b-3 COMPLIANCE
11.1. Six-Month Holding Period. Unless an Optionee could otherwise
dispose of equity securities, including derivative securities, acquired under
the Plan without incurring liability under Section 16(b) of the Exchange Act,
equity securities acquired under the Plan must be held for a period of six
months following the date of such acquisition, provided that this condition
shall be satisfied with respect to a derivative security if at least six months
elapse from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or conversion)
or its underlying equity security.
11.2. Other Compliance Provisions. The Committee shall implement
transactions under the Plan and administer the Plan in a manner that will ensure
that each transaction by an Optionee is exempt from liability under Rule 16b-3,
except that Optionees may be permitted to engage in a non-exempt transaction
under the Plan if written notice has been given to the Optionee regarding the
non-exempt nature of the transaction. The Committee may authorize the Company to
repurchase any Option or shares of Stock acquired under the Plan in order to
prevent an Optionee from incurring liability under Section 16(b). Unless
otherwise specified by the Optionee, equity securities, including derivative
securities, acquired under the Plan which are disposed of by an Optionee shall
be deemed to be disposed of in the order acquired by the Optionee.
12. GOVERNING LAW
The Plan will be governed, and its provisions construed, in accordance
with the laws of the State of Delaware and applicable federal law, without
regard to conflicts of law.
5
<PAGE>
GRC INTERNATIONAL, INC.
DIRECTORS RETIREMENT PLAN
As Amended and Restated May 1, 1999
Article 1. PURPOSE OF PLAN.
(a) GRC International, Inc. (the "Company") established this Directors
Retirement Plan (the "Plan") as of the 1st day of July, 1991. The purpose of the
Plan was to provide supplementary retirement income for the Company's eligible
Directors for services rendered during the period July 1, 1991 through May 1,
1999. The Plan has been amended and restated at May 1, 1999 in order to
terminate further accruals of retirement benefits under the Plan, provide an
equitable basis upon which to wind up the Company's obligations under the Plan,
and provide for the termination of the Plan.
(b) It is intended that this Plan be maintained as an unfunded,
unsecured, nonqualified deferred compensation arrangement, not subject to the
substantive provisions of the Employee Retirement Income Security Act of 1974
and not eligible for the insurance protection provided by the Pension Benefit
Guaranty Corporation, provided, however, that if a Change of Control occurs, all
benefits remaining payable hereunder will be paid in accordance with Article 5.
Article 2. DEFINITIONS.
For purposes of this Plan and any explanatory material associated with
it, the following terms shall have the following meanings unless stated
otherwise:
(a) "Board" means the board of directors of the Company.
(b) "Committee" means those Directors appointed by the Board to
administer the Plan.
(c) "Deferred Stock Units" means the credits to a Participant's
deferral account under Article 5, each of which represents the right to receive
one share of the Company's Common Stock upon settlement of the deferral account.
Deferral accounts, and Deferred Stock Units credited thereto, are maintained
solely as bookkeeping entries by the Company evidencing unfunded,
non-transferable obligations of the Company.
(d) "Director" means a member of the Board who occupied such position
at any time during the period from the Original Effective Date through May 1,
1999.
(e) "Former Plan" means the Plan as in effect immediately prior to May
1, 1999.
(f) "Original Effective Date" means July 1, 1991, the date the Plan
originally became effective.
(g) "Participant" means a Director participating in the Plan as of May
1, 1999. No person who is not a Director at May 1, 1999 remains entitled to any
current or future benefit under the Plan.
(h) "Plan Administrator" means the General Counsel of the Company.
<PAGE>
(i) "Service" means service performed on behalf of the Company as a
Director.
(j) "Standard Retirement Benefit" has the meaning assigned under
Article 4 of the Former Plan.
(m) "Year of Service" means the 12-month period commencing with the
date on which the individual became a Director, and each such 12-month period
thereafter, rounded to the nearest whole year, except that no Service after May
1, 1999 shall be counted toward a Year of Service; provided, however, that a
Director will not be given credit for a Year of Service for any such 12-month
period in which the Director's fees, wages, salary or bonuses paid to him by the
Company exceed $200,000 in the aggregate.
Article 3. PARTICIPATION AND PLAN TERMINATION
(a) All Participants in the Plan on May 1, 1999 shall be entitled to
participate in the Plan and receive benefits as specified in or under the Plan,
based on service as a Director on or before May 1, 1999. No benefits will accrue
to any Participant based on service as a Director after May 1, 1999, and no
person other than such a Participant shall participate in the Plan on and after
May 1, 1999.
(b) At such time as all Participants have received Deferred Stock Units
in exchange for rights to other benefits under the Plan, or otherwise no
benefits remain payable or potentially payable under the Plan, the Plan shall
terminate.
Article 4. BENEFITS TO EXISTING RETIREES
At May 1, 1999, no person who is not then a Director is receiving or
remains potentially entitled to receive benefits under the Plan.
Article 5. BENEFITS TO PARTICIPANTS SERVING AS DIRECTORS ON MAY 1, 1999
(a) Each Participant who is a Director of the Company on May 1, 1999,
shall be permitted, on or before July 31, 1999, to elect to receive a grant of
Deferred Stock Units having an aggregate fair market value, at May 1, 1999,
equal to the present value at May 1, 1999, of the Participant's total accrued
benefits under the Plan, in exchange for the Participant's surrender of all
rights to other benefits, including retirement and death benefits and any Change
of Control Annuity (as authorized under the Former Plan), payable or potentially
payable under the Plan to such Participant and/or his Designated Beneficiaries.
A Participant who surrenders all rights to benefits under the Plan in the
exchange provided for under this Article 5 must execute and deliver to the
Company a Deferred Stock Units Agreement, on or before July 31, 1999,
substantially in the form attached hereto, irrevocably agreeing to such exchange
and the surrender of all rights to benefits under the Plan other than the
Deferred Stock Units to be issued pursuant to this Article 5. For purposes of
this Article 5, a Participant's total accrued benefits under the Plan shall mean
the benefits payable under the Former Plan to the Participant and his
beneficiaries assuming the Participant retired as a Director on May 1, 1999,
except that, instead of the vesting specified in Article 4(b) of the Former
Plan, the Participant would be assumed to have become entitled to 10% of the
maximum Standard Retirement Benefit for each Year of Service accrued by the
Director as of May 1, 1999 (up to a maximum of 100%). Present value and other
factors necessary to calculate the amount payable under this Article 5 shall be
calculated assuming accrued benefits would be payable beginning at age 70, and
assuming a
2
<PAGE>
post-retirement interest rate of 4.5%, and otherwise as determined by actuarial
and other experts retained by the Company for the purpose of calculating amounts
under this Article 5(a).
(b) The Deferred Stock Units Agreement shall provide that each
Participant shall receive settlement of his Deferred Stock Units in full on
January 1 of the year after his retirement or other cessation of service as a
Director. Settlement shall be made solely by issuance or delivery of shares of
the Company's Common Stock, which shares may be authorized but unissued shares
or treasury shares.
(c) The Company shall establish for the Participant a deferral account
and credit thereto the number of Deferred Stock Units determined in accordance
with Article 5(a). The fair market value of Deferred Stock Units shall be based
upon the average of the high and low sales prices of Company Common Stock on
April 30, 1999. Deferred Stock Units so credited shall not include fractional
units but rather shall be rounded to the nearest whole unit. Deferred Stock
Units shall be entitled to be credited with dividend equivalents and to
equitable adjustments upon the occurrence of extraordinary corporate events, to
prevent dilution or enlargement of the Participant's rights.
(d) Deferred Stock Units credited under this Article 5 shall at all
times be fully vested and non-forfeitable, except as provided in Article 3(b).
(e) If a Participant serving as a Director on May 1, 1999, does not
make the election authorized in Article 5(a) above, benefits shall be paid in
accordance with the terms of the Former Plan to such Participant and/or his
beneficiary, except that no additional amount of benefits will accrue under the
Plan after May 1, 1999. Accordingly, such Participant's Years of Service shall
be deemed to equal his Years of Service as of May 1, 1999, and the maximum
amount of Retainer (as defined in the Former Plan) for purpose of calculating
such Participant's benefits shall not exceed the Retainer in effect as of May 1,
1999.
(f) Other provisions of this Plan notwithstanding, (i) no single
Participant may acquire under the Plan Deferred Stock Units representing more
than one percent of the Company's Common Stock outstanding at May 1, 1999, and
(ii) the aggregate number of Deferred Stock Units that may be granted hereunder,
together with shares authorized for grant under all plans of the Company (other
than plans for which shareholder approval is not required under Section
312.03(a)(1) - (3) of the Listed Company Manual of the New York Stock Exchange
or otherwise excluded under Section 312.03(a)(4)) shall be limited so as not to
authorize issuance of more than five percent of the Company's Common Stock at
May 1, 1999.
Article 6. MISCELLANEOUS.
(a) Deferred Stock Units shall be non-transferable, and no person shall
be entitled to anticipate any payment hereunder by assignment, alienation, sale,
pledge, encumbrance or transfer of such payment or rights thereto in any form or
manner prior to actual or constructive receipt thereof.
(b) The Company's obligations hereunder shall be entirely unfunded and
unsecured, and upon the nonpayment of any obligation hereunder, a Director or
his Designated Beneficiary shall have the right only of an unsecured creditor of
the Company.
(c) The Board, either acting directly or through the Committee, shall
interpret the Plan and make all determinations necessary or desirable to
implement the Plan. This authority
3
<PAGE>
may be delegated to the Plan Administrator. The determination of either the
Board, the Committee or the Plan Administrator shall be final and conclusive
(except the Board or Committee shall retain authority to preempt action of the
Plan Administrator). The Board, Committee or Plan Administrator may obtain such
advice or assistance as it deems appropriate from employees of the Company,
experts and other third parties.
(d) Any payment due hereunder shall be made on the first business day
of the applicable month.
(e) This Plan shall be subject to and governed by the laws of the
Commonwealth of Virginia without regard to the conflict of laws and principles
thereof, except corporate law matters shall be determined in accordance with the
Delaware General Corporation Law.
Attachment: Form of Deferred Stock Unit Agreement
4
<PAGE>
GRC INTERNATIONAL, INC.
DIRECTORS RETIREMENT PLAN
DEFERRED STOCK UNITS AGREEMENT
AND ELECTION
This Agreement dated as of May 1, 1999, by and between the GRC
International, Inc. ("Company") and ------------- ("Director").
Background
----------
The Board of Directors of the Company (the "Board") amended and
restated the Directors Retirement Plan (the "Plan") to provide that Participants
may elect to receive Deferred Stock Units in lieu of other benefits under the
Plan. Director is entitled to receive ----- Deferred Stock Units having an
aggregate fair market value, at May 1, 1999, equal to $-----------, the present
value of Director's total accrued benefit under the Plan in such exchange. The
aggregate fair market value of Deferred Stock Units is based on the fair market
value per share of the Company's Common Stock at May 1, 1999, which was
$7.59375. Fractional Deferred Stock Unit amounts have been rounded to the
nearest whole number.
1. Grant of Deferred Stock Units in Exchange for Other Rights Under the
--------------------------------------------------------------------
Plan.
- ----
(a) Terms of Grant. Director hereby irrevocably elects to receive
the grant of -------- Deferred Stock Units ("DSUs") under the Plan in exchange
for all of Director's rights to other benefits payable or potentially payable
under the Plan, and surrenders all such rights to benefits other than DSUs under
the Plan. The Company hereby confirms the grant of the DSUs pursuant to Article
5(a) of the Plan, to Director as of May 1, 1999 (the "Date of Grant"). The DSUs
are subject to all of the terms and conditions set forth in this Deferred Stock
Units Agreement and Election ("Agreement"). The Company shall maintain a
bookkeeping account for Director ("Account") reflecting the number of DSUs then
credited to Director hereunder as a result of such grant of DSUs and any
crediting of additional DSUs to Director pursuant to dividend equivalents under
Section 4 ("Dividend Equivalents").
(b) Acknowledgment of Director. Director acknowledges receipt of a
copy of the Plan, and Director hereby agrees to be bound by this Agreement and
by all decisions and determinations of the Board of Directors and any Plan
Administrator or other person to whom the Board may delegate authority with
respect to the DSUs and this Agreement.
2. Nontransferability. DSUs and rights relating thereto shall not be
transferable other than by will or by the laws of descent and distribution in
the event of Director's death, and no such transfer shall be effective to bind
the Company unless the Company shall have been furnished with a copy of such
will or such other evidence as the Company may deem necessary to establish the
validity of the transfer.
3. Settlement.
---------
(a) Settlement. DSUs granted hereunder, together with DSUs credited
as a result of Dividend Equivalents, shall be settled by delivery of one share
of the Company's
<PAGE>
Common Stock for each DSU being settled. Settlement of each DSU shall occur at
January 1 of the year following my termination of service as a Director.
(b) Source of Shares. Shares of the Company's Common Stock issued or
delivered in settlement of DSUs may be authorized but unissued shares or
treasury shares.
4. Dividend Equivalents and Adjustments.
------------------------------------
(a) Dividend Equivalents. Dividend Equivalents shall be paid or
credited on DSUs (other than DSUs that, at the relevant record date, previously
have been settled or forfeited) as follows:
(i) Cash Dividends. If the Company declares and pays a
dividend or distribution on Common Stock in the form of
cash, then a number of additional DSUs shall be credited
to Director's Account as of the payment date for such
dividend or distribution equal to the number of DSUs
credited to the Account as of the record date for such
dividend or distribution multiplied by the amount of cash
actually paid as a dividend or distribution on each
outstanding share of Common Stock at such payment date,
divided by the Fair Market Value of a share of Common
Stock at such payment date.
(ii) Non-Common Stock Dividends. If the Company declares and
pays a dividend or distribution on Common Stock in the
form of property other than shares of Common Stock, then a
number of additional DSUs shall be credited to Director's
Account as of the payment date for such dividend or
distribution equal to the number of DSUs credited to the
Account as of the record date for such dividend or
distribution multiplied by the Fair Market Value of such
property actually paid as a dividend or distribution on
each outstanding share of Common Stock at such payment
date, divided by the Fair Market Value of a share of
Common Stock at such payment date.
(iii)Common Stock Dividends and Splits. If the Company declares
and pays a dividend or distribution on Common Stock in the
form of additional shares of Common Stock, or there occurs
a forward split of Common Stock, then a number of
additional DSUs shall be credited to Director's Account as
of the payment date for such dividend or distribution or
forward split equal to the number of DSUs credited to the
Account as of the record date for such dividend or
distribution or split multiplied by the number of
additional shares of Common Stock actually paid as a
dividend or distribution or issued in such split in
respect of each outstanding share of Common Stock.
(b) Adjustments to DSUs. The number of DSUs credited to
Director's Account shall be appropriately adjusted, in order to prevent dilution
or enlargement of Director's rights with respect to DSUs, to reflect any changes
in the number of outstanding shares of Common Stock resulting from any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction, or any large, special and
non-recurring dividend or other distribution. Such adjustment shall be made by
the Board (or its delegate), taking into account any DSUs credited to Director
in connection with such event under Section 4(a) hereof.
2
<PAGE>
5. Hardship. Upon receipt of a written request from Director, the Board
of Directors, in its sole discretion, may determine that acceleration of
settlement of the DSUs is necessary on account of a severe financial hardship to
Director. In such case, the Board may accelerate such settlement as necessary to
relieve the hardship. The Board shall determine the existence of a severe
financial hardship in a manner consistent with Internal Revenue Service rules
and regulations pertaining to the avoidance of constructive receipt of income.
6. Miscellaneous.
-------------
(a) Binding Agreement. This Agreement shall be legally binding when
executed by both the Company and Director. This Agreement shall be binding upon
the heirs, executors, administrators and successors of the parties. This
Agreement constitutes the entire agreement between the parties with respect to
the DSUs, and supersedes any prior agreements or documents with respect to the
DSUs. No amendment, alteration, suspension, discontinuation or termination of
this Agreement, and no oral statement outside of this agreement, which may
purport to impose any additional obligation upon the Company or impair the
rights of Director with respect to the DSUs shall be valid unless in each
instance such amendment, alteration, suspension, discontinuation or termination
is expressed in a written instrument duly executed in the name and on behalf of
the Company and by Director.
(b) Rights Under DSUs Those of Unsecured Creditor. Any provision for
distribution in settlement of Director's Account hereunder shall be by means of
bookkeeping entries on the books of the Company and shall not create in Director
any right to, or claim against any, specific assets of the Company, nor result
in the creation of any trust or escrow account for Director. Director shall be a
general creditor of the Company. DSUs shall confer no rights of a shareholder at
any time prior to the issuance and delivery of shares in settlement of such
DSUs.
(c) Notices. Any notice hereunder to the Company shall be in writing
and addressed to it at its principal executive offices, Attn: General Counsel,
and any notice to Director shall be in writing and addressed to him or her at
the most recent address furnished in writing by Director to the Company.
IN WITNESS WHEREOF, the Company and Director have caused this
Agreement to be executed as of the day and year first above written.
GRC INTERNATIONAL, INC.
- ----------------------------- By:
Director ---------------------------
Name:
Title:
3
<PAGE>
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
dated as of
August 27, 1999
by and between
GRC INTERNATIONAL, INC.
(the "Borrower")
and
MERCANTILE-SAFE DEPOSIT
AND TRUST COMPANY
(the "Bank")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
Credit Facility
---------------
<S> <C> <C>
1.1 Revolving Credit Loan; Letters of Credit 2
1.2 Advances and Payments 2
1.3 Election of Fluctuating Rate 3
1.4 General Loan Provisions 4
1.5 Notice and Manner of Borrowing 7
1.6 Method of Payment 7
1.7 Use of Loan Proceeds 7
1.8 Fees 7
1.9 Collateral Security 8
Definitions
-----------
2.1 Definitions 8
2.2 Amendments, etc. Included 14
Representations and Warranties
3.1 Organization and Authority; Conflicting Laws and Agreements 15
3.2 Subsidiaries 15
3.3 Margin Stock 15
3.4 Financial Statements 15
3.5 Financial Condition 15
3.6 Litigation; Tax Returns; Governmental Approvals 15
3.7 Liens 16
3.8 Enforceability 16
3.9 No Defaults 16
3.10 ERISA 16
3.11 Commercial Loan 17
3.12 Hazardous Materials 17
3.13 Assignments under the Federal Assignment of Claims Act 17
<PAGE>
Section Page
- ------- ----
Covenants
---------
4.1 Payment of Taxes and Other Claims 17
4.2 Maintenance of Properties 17
4.3 Corporate Existence 18
4.4 Maintenance of Insurance 18
4.5 Financial Information, Tax Returns and Reports 18
4.6 Indebtedness 20
4.7 Liens 21
4.8 Disposition of Stock and Indebtedness 21
4.9 Investments, Loans, Advances, Guarantees and Contingent Liabilities 22
4.10 Merger and Sale of Assets 22
4.11 Dealings with Affiliates 23
4.12 Limitations on Certain Contracts 23
4.13 ERISA 23
4.14 Issuance of Stock 24
4.15 Financial Ratio 24
4.16 Obligations of the Borrower Unconditional 24
4.17 Businesses 24
4.18 Compliance with Laws 24
4.19 Hazardous Materials 25
4.20 Material Agreements 25
4.21 Assignments under the Federal Assignment of Claims Act 25
4.22 Additional Subsidiaries 25
Events of Default and Remedies
------------------------------
5.1 Events of Default 26
5.2 Acceleration 28
5.3 Costs of Collection 28
5.4 Consent to Jurisdiction; Waiver of Jury Trial 28
5.5 Service of Process 29
5.6 Acceleration of Other Obligations to Bank 29
5.7 Remedies Cumulative 29
<PAGE>
Section Page
- ------- ----
Conditions Precedent to Lending
-------------------------------
6.1 Conditions to the Making of the Initial
Advance under the Revolving Credit Loan 29
6.2 Conditions to the Making of Each Advance under
the Revolving Credit Loan 30
Collateral Security
-------------------
7.1 Security Documents 31
7.2 Deposit Balances 31
Miscellaneous
-------------
8.1 Exercise of Rights 31
8.2 Payment Due on Banking Day 32
8.3 Assessments 32
8.4 Survival 32
8.5 Notices 32
8.6 Counterparts 32
8.7 Successors and Assigns; Governing Law; Amendments 33
8.8 Section Headings; Construction 33
8.9 Transaction Expenses 33
8.10 Estoppel Certificates 33
8.11 Indemnification 34
8.12 Publicity 34
</TABLE>
Exhibit A -- Form of Consolidated, Amended and Restated
- ---------
Revolving Credit Master Note
<PAGE>
AMENDED AND RESTATED
--------------------
REVOLVING CREDIT AGREEMENT
--------------------------
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this
"Agreement") is dated as of the 27th day of August, 1999, by and between GRC
INTERNATIONAL, INC., a Delaware corporation (the "Borrower"), and
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, a Maryland banking institution (the
"Bank").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to (i) that certain Amended and Restated
Revolving Credit and Term Loan Agreement dated as of February 12, 1996 by and
among the Bank, the Borrower, SWL Inc. and General Research Corporation, as
amended by that certain First Confirmation and Amendment effective as of March
31, 1996, that certain Second Confirmation and Amendment effective as of June
30, 1996, that certain Third Confirmation and Amendment effective as of June 30,
1996, that certain Fourth Confirmation and Amendment effective as of December
31, 1996, that certain Fifth Confirmation and Amendment effective as of April
30, 1997 and that certain Sixth Confirmation and Amendment effective as of March
31, 1997 (collectively, the "1996 Loan Agreement"), (ii) that certain Amended
and Restated Revolving Credit Master Note dated July 18, 1996 in the face
principal amount of $22,000,000 executed by the Borrower in favor of the Bank
(the "1996 Revolving Credit Note") and (iii) that certain Term Loan Note dated
February 12, 1996 in the face principal amount of $2,200,000, that certain Term
Loan Note dated March 8, 1996 in the face principal amount of $400,000 and that
certain Secured Note (Commercial) dated June 7, 1996 in the face principal
amount of $2,600,000, all as subsequently amended (collectively, the "1996 Term
Notes"), the Bank has established a $22,000,000 revolving credit facility and an
$8,000,000 standby credit facility in favor of the Borrower, with the current
aggregate outstanding principal balance under the 1996 Revolving Credit Note and
the 1996 Term Notes being $___________; and
WHEREAS, the Borrower has requested and the Bank has agreed to
amend and restate the 1996 Loan Agreement for the purpose, among other things,
of consolidating the revolving credit and standby credit facilities referred to
above and the aggregate principal outstanding balances thereunder and of
increasing the maximum aggregate availability under such facilities from
$30,000,000 to $35,000,000 (such indebtedness, as so consolidated and increased,
the "Revolving Credit Loan") by having the Borrower execute and deliver to the
Bank a Consolidated, Amended and Restated Revolving Credit Master Note in the
form attached as Exhibit A hereto (the "Revolving Credit Note").
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants herein contained, the parties hereby agree as follows:
1. CREDIT FACILITY.
---------------
1.1. Revolving Credit Loan; Letters of Credit. (a) On the date that the
Borrower shall have satisfied all of the conditions precedent set forth in
Section 6.1 hereof but in no event later than August 31, 1999 (the "Closing
Date"), the Borrower shall execute and deliver to the Bank the Revolving Credit
Note. The Revolving Credit Loan shall bear interest at a fluctuating rate of
interest established from time to time in the manner set forth in Section 1.3
hereof. During such period(s) as the Revolving Credit Loan or a component
thereof is a Prime Rate Loan, accrued interest on such component shall be
payable monthly on the first day of each calendar month. During such period(s)
as the Revolving Credit Loan or a component thereof is a Eurodollar Loan,
accrued interest on such component shall be payable on the last day of the
applicable Interest Period; provided that in the case of an Interest Period of
six months, accrued interest shall also be payable on the day which is three
months after the first day of such Interest Period. The Bank is hereby
authorized to indicate by notation on its internal loan accounting system, with
appropriate reference to the customer number assigned by the Bank, all advances
of the Revolving Credit Loan made pursuant to this Agreement and all payments of
principal. Such notations shall be presumptive as to the aggregate unpaid
principal balance of the Revolving Credit Loan, but the failure of the Bank to
make any such notation shall not affect the obligations of the Borrower
hereunder or in connection with the Revolving Credit Loan. The entire, then
outstanding principal balance of the Revolving Credit Loan, together with the
accrued and unpaid interest thereon, shall be due and payable on August 27, 2001
(the "Maturity Date").
(b) Subject to the terms and conditions hereof, the Bank
agrees to issue letters of credit for the account of the Borrower on any Banking
Day prior to the Maturity Date, in such form as may be approved from time to
time by the Bank; provided that the Bank shall have no obligation to issue any
letter of credit if, after giving effect to such issuance, the aggregate amount
of all letters of credit so issued and outstanding, when added to the then
outstanding principal balance of the Revolving Credit Loan, would exceed the
Commitment. Each letter of credit shall be issued pursuant to the Bank's
standard letter of credit application, reimbursement agreement and/or such other
documentation as the Bank may require, and shall be in such amount(s) and
subject to such duration, draw and other conditions as are acceptable to the
Bank in its sole discretion.
1.2. Advances and Payments. The aggregate amount of all advances under
the Revolving Credit Loan at any one time outstanding shall not exceed the
Commitment. The Borrower shall from time to time make such payments of
principal, together with accrued interest on the principal so paid, to the Bank
as shall be necessary in order to maintain the outstanding balance of such
advances at or below the Commitment.
2
<PAGE>
1.3. Election of Fluctuating Rate. (a) Commencing as of the Closing
Date, the Revolving Credit Loan may from time to time be a Prime Rate Loan or a
Eurodollar Loan, at the election of the Borrower upon notice to the Bank prior
to 12 noon on the Banking Day immediately preceding the date of advance of any
such Prime Rate Loan or Eurodollar Loan. During any period(s) that the Borrower
has not made an effective election under this Section 1.3, the Revolving Credit
Loan shall be a Prime Rate Loan.
(b) The Borrower may elect from time to time to convert any
Eurodollar Loan to a Prime Rate Loan, by giving notice of such election to the
Bank prior to 12 noon on the Banking Day immediately preceding the date of
conversion, provided that any such conversion may only be made on the last day
of an Interest Period with respect thereto. The Borrower may elect from time to
time to convert any Prime Rate Loan to a Eurodollar Loan by giving notice of
such election to the Bank prior to 12 noon on the Banking Day immediately
preceding the date of conversion. Any such notice of conversion to a Eurodollar
Loan shall specify the length of the initial Interest Period therefor.
Notwithstanding the foregoing, no Prime Rate Loan may be converted into a
Eurodollar Loan when any Default or Event of Default shall have occurred and be
continuing and the Bank shall have determined that such a conversion is not
appropriate.
(c) Any Eurodollar Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Bank, in accordance with the applicable provisions
of the defined term "Interest Period" set forth in Section 2.1 hereof, of the
length of the next Interest Period to be applicable to such Eurodollar Loan,
provided that no Eurodollar Loan may be continued as such when any Default or
Event of Default shall have occurred and be continuing and the Bank shall have
determined that such continuation is not appropriate.
(d) Any notice of conversion to or continuation of any
Eurodollar Loan pursuant to Section 1.3(b) or 1.3(c) hereof may, subject to the
applicable provisions of the term determined "Interest Period" set forth in
Section 2.1 hereof, specify more than one Interest Period for different portions
of such Eurodollar Loan; provided that if the Borrower elects to split any
Eurodollar Loan into more than one Interest Period for different portions
thereof, then each such Interest Period portion of such Eurodollar Loan shall be
in an amount of at least $500,000 and may be amounts greater than $500,000 which
are whole multiples of $100,000 (for example, $600,000, $700,000, etc.). In
addition, the Borrower may in any such notice elect to split the Revolving
Credit Loan into a Prime Rate Loan component and a Eurodollar Loan component, so
long as the Eurodollar Loan component of the Revolving Credit Loan is in an
amount of at least $500,000 and may be amounts greater than $500,000 which are
whole multiples of $100,000 (for example, $600,000, $700,000, etc.). In no event
shall there be more than ten (10) different Eurodollar Loans outstanding at any
time.
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<PAGE>
(e) The fluctuating rate of interest applicable to all
Eurodollar Loans shall be the Eurodollar Rate plus the Applicable Margin. The
fluctuating rate of interest applicable to all Prime Rate Loans shall be the
Prime Rate plus the Applicable Margin.
(f) All elections by the Borrower under this Section 1.3 may
be made in such manner as the Bank from time to time deems reasonable and
appropriate under the circumstances.
1.4. General Loan Provisions. (a) Inability to Determine
Eurodollar Rate. In the event that prior to the first day of any Interest Period
the Bank shall have determined (which determination shall be conclusive and
binding upon the Borrower) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Base Rate for such Interest Period, the Bank shall give notice
thereof to the Borrower as soon as practicable thereafter. If such notice is
given, (x) any Eurodollar Loan requested to be made on the first day of such
Interest Period shall be made as a Prime Rate Loan, (y) any Prime Rate Loan that
was to have been converted on the first day of such Interest Period to a
Eurodollar Loan shall be continued as a Prime Rate Loan, and (z) any Eurodollar
Loan that on the first day of such Interest Period was to have been continued
as, or converted to, a Eurodollar Loan shall be converted to or continued as a
Prime Rate Loan. Until such notice has been withdrawn by the Bank, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert any Prime Rate Loan to a Eurodollar Loan.
(b) Illegality. Notwithstanding any other provision herein, if
any change in any law, rule or regulation or order of court applicable to the
Bank or the Borrower, or in the interpretation or application thereof, shall
make it unlawful for the Bank to make or maintain a Eurodollar Loan as
contemplated by this Agreement, (x) the commitment of the Bank hereunder to make
a Eurodollar Loan, continue a Eurodollar Loan as such and convert a Prime Rate
Loan to a Eurodollar Loan shall forthwith be cancelled and (y) any portion of
the Revolving Credit Loan then outstanding as a Eurodollar Loan shall be
converted automatically to a Prime Rate Loan on the last day of the then current
Interest Period with respect to such portion of the Revolving Credit Loan or
within such earlier period as required by law. If any such conversion of a
Eurodollar Loan occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Borrower shall pay to such Bank such
amounts, if any, as may be required pursuant to Section 1.4(e) hereof.
(c) Requirements of Law. (x) In the event that any change in
any law, rule or regulation or order of court applicable to the Bank or the
Borrower, or in the interpretation or application thereof, or compliance by the
Bank with any request or directive (whether or not having the force of law) from
any central bank or other governmental authority made subsequent to the date
hereof:
(i) shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement, any Note, or any Eurodollar Loan made
by it, or change
4
<PAGE>
the basis of taxation of payments to the Bank in respect thereof (except for
taxes covered by Section 1.4(d) hereof and changes in the rate of tax on the
overall net income of the Bank); or
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, any office of the
Bank which is not otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, converting into,
continuing or maintaining a Eurodollar Loan or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay the Bank, upon demand, any additional amounts necessary to
compensate the Bank for such increased cost or reduced amount receivable. If the
Bank becomes entitled to claim any additional amounts pursuant to this Section
1.4(c), it shall promptly notify the Borrower of the event by reason of which it
has become so entitled. The Bank also agrees to use its best efforts to notify
the Borrower of any event that could reasonably be expected to result in a claim
for additional amounts pursuant to this Section 1.4(c); provided that the
failure to give any such notice shall not in any way have any adverse effect
upon the rights of the Bank hereunder. A certificate as to any additional
amounts payable pursuant to this Section 1.4(c) submitted by the Bank to the
Borrower shall be conclusive in the absence of manifest error.
(y) In the event that the Bank shall have determined that any
change in any law, rule or regulation or order of court applicable to the Bank
or the Borrower regarding capital adequacy or in the interpretation or
application thereof, or compliance by the Bank or any corporation controlling
the Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) from any governmental authority made subsequent to
the date hereof, does or shall have the effect of reducing the rate of return on
the Bank's or such corporation's capital as a consequence of its obligations
hereunder (whether in respect of a Prime Rate Loan, a Eurodollar Loan, a letter
of credit or otherwise) to a level below that which the Bank or such corporation
could have achieved, but for such change or compliance (taking into
consideration the Bank's or such corporation's policies with respect to capital
adequacy), by an amount deemed by the Bank to be material, then from time to
time, after submission by the Bank to the Borrower of a written request
therefor, the Borrower shall pay to the Bank the additional amount or amounts as
will compensate the Bank for such reduction.
5
<PAGE>
(z) The covenants set forth in this Section 1.4(c) shall
survive the termination of this Agreement and the payment of the Revolving
Credit Note and all other amounts payable hereunder and under the Loan
Documents.
(d) Taxes. All payments made by the Borrower under this
Agreement and the Note shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
governmental authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Bank as a result of a present or
former connection between the jurisdiction of the government or taxing authority
imposing such tax and the Bank (excluding a connection arising solely from the
Bank having executed, delivered or performed its obligations or receive a
payment under, or enforced, any of the Loan Documents) or any political
subdivision or taxing authority thereof or therein (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"). If any Taxes are required to be withheld from any
amounts payable to the Bank hereunder or under the Note, the amounts so payable
to the Bank shall be increased to the extent necessary to yield to the Bank
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Note. Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Bank a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Bank the required receipts or other required documentary
evidence, the Borrower shall indemnify the Bank for any incremental taxes,
interest or penalties that may become payable by the Bank as a result of any
such failure. The agreements in this Section 1.4(d) shall survive the
termination of this Agreement and the payment of the Note and all other amounts
payable hereunder and under the Loan Documents.
(e) Indemnity. The Borrower agrees to indemnify the Bank and
to hold the Bank harmless from any loss or expense which the Bank may sustain or
incur as a consequence of (a) default by the Borrower in payment when due of the
principal amount of or interest on the Revolving Credit Loan, (b) default by the
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the same in accordance
with the provisions of this Agreement, (c) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement, or (d) the making of a prepayment of any
Eurodollar Loan on a day which is not the last day of an Interest Period with
respect thereto, including (without limitation) in each case, any such loss or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive the termination of this Agreement and the payment of the
Note and all other amounts payable hereunder and under the Loan Documents.
6
<PAGE>
(f) Prepayment. The Borrower shall have the right and
privilege to prepay any Prime Rate Loan, in whole or in part, at any time, and
no such prepayment shall be subject to any premium or penalty for prepayment. No
Eurodollar Loan shall be prepaid prior to the last day of its applicable
Interest Period.
1.5. Notice and Manner of Borrowing. The Bank shall, from time to time,
subject to the Commitment and so long as no Event of Default or Potential
Default has occurred or is continuing, make advances under the Revolving Credit
Loan upon receipt of requests therefor (which may be given in writing, by
telephone or in any other manner which the Bank deems reasonable and appropriate
under the circumstances) from the Borrower's chief executive officer, chief
financial officer, controller or such other authorized officer or officers as
the Borrower may from time to time specify to the Bank in writing. Each such
request shall include the date and amount of the advance subject thereto and the
information required by Section 1.3 hereof, and shall comply with such
additional requirements as may be set forth in the Revolving Credit Note.
1.6. Method of Payment. All payments hereunder and under the Revolving
Credit Note shall be made by not later than 2:00 P.M. (Baltimore time) on the
date when due, to the Bank at its address referred to in Section 8.5 hereof in
immediately available funds. Whenever any payment hereunder or under the
Revolving Credit Note becomes due on a day which is not a Banking Day
(hereinafter defined), such payment may be made on the next succeeding Banking
Day and such extension of time shall be included in the computation of the
interest due.
1.7. Use of Loan Proceeds. The Borrower may use the proceeds of the
Revolving Credit Loan for acquisitions, working capital and other corporate
purposes (including, without limitation, for the purpose of funding that portion
of the operations of the Borrower and its Subsidiaries that otherwise would have
been funded by payments on government contracts, during such time as the U.S.
federal government fails to make or delays making such payments, in whole or in
part, as a result of the Year 2000 Problem), subject, however, to the
restrictions set forth in this Agreement.
1.8. Fees. (a) The Borrower shall pay to the Bank on the Closing Date
an origination fee of $87,500, equal to 0.25% (25 basis points) of the
Commitment.
(b) The Borrower shall also pay to the Bank a facility fee for
the period from the Closing Date to the Maturity Date, equal to the average
daily amount of the Commitment (i.e., $35,000,000/360, or $97,222.22) multiplied
by (i) 0.30% (30 basis points), for any such fiscal quarter in which the ratio
of the Debt of the Borrower and its Subsidiaries (determined on a consolidated
basis in accordance with GAAP) to EBITDA is less than 1.75:1, (ii) 0.40% (40
basis points), for any such fiscal quarter in which the ratio of the Debt of the
Borrower and its Subsidiaries (determined on a consolidated basis in accordance
with GAAP) to EBITDA is greater than or equal to 1.75:1 but less than 2.25:1,
(iii) 0.50% (50 basis points), for any such fiscal quarter in which the ratio of
the Debt of the Borrower and its Subsidiaries (determined on a consolidated
basis in
7
<PAGE>
accordance with GAAP) to EBITDA is greater than or equal to 2.25:1 but less than
2.75:1, and (iv) 0.75% (75 basis points), for any such fiscal quarter in which
the ratio of the Debt of the Borrower and its Subsidiaries (determined on a
consolidated basis in accordance with GAAP) to EBITDA is greater than or equal
to 2.75:1. Such facility fee (x) shall be payable quarterly in arrears on the
last Banking Day of each September, December, March and June and the Maturity
Date, commencing on September 30, 1999, (y) shall be calculated on the basis of
a 90-day quarter except for (1) the period between the Closing Date and
September 30, 1999 and (2) the period between June 30, 2001 and the Maturity
Date, in which case such fee shall be calculated on the basis of a 360-day year
factor applied to actual days elapsed and (z) and shall be calculated such that
(1) the payment due on the last Banking Day of any September shall be based on
the ratio of the Debt of the Borrower and its Subsidiaries (determined on a
consolidated basis in accordance with GAAP) to EBITDA for the period of four
consecutive fiscal quarters ending on the preceding June 30, (2) the payment due
on the last Banking Day of any December shall be based on such ratio for the
period of four consecutive fiscal quarters ending on the preceding September 30,
(3) the payment due on the last Banking Day of any March shall be based on such
ratio for the period of four consecutive fiscal quarters ending on the preceding
December 31 and (4) the payment due on the last Banking Day of any June, as well
as the payment due on the Maturity Date, shall be based on such ratio for the
period of four consecutive fiscal quarters ending on the preceding March 31.
1.9. Collateral Security. The Borrower covenants and agrees that all
advances under the Revolving Credit Loan at any time outstanding and all present
and future indebtedness from time to time owing to the Bank from the Borrower or
any Subsidiary (hereinafter defined), whether pursuant to this Agreement, any
other credit facility, any guarantee or otherwise, shall at all times be secured
by and entitled to the benefit of all collateral security of every type and
description heretofore or hereafter afforded the Bank by the Borrower or any
Subsidiary, whether pursuant to this Agreement, any other credit facility, any
guarantee or otherwise.
2. DEFINITIONS.
-----------
2.1. Definitions. The following terms, when used herein, shall have the
following meanings:
"Additional Borrower" shall have the meaning set forth in Section
4.22(b) hereof.
"Affiliate" shall mean a Person (including a subsidiary) (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Borrower, (ii) which
beneficially owns or holds five percent (5%) or more of any class of the voting
shares (that is, shares entitled to vote for corporate directors) of the
Borrower, or (iii) five percent (5%) or more of the voting shares (or in the
case of a Person which is not a corporation, five percent (5%) or more of the
equity interest) of which is beneficially owned or held by the Borrower or
another Affiliate. The term "control" means the possession, directly or
indirectly, of the power to
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<PAGE>
direct or cause the direction of the management and policies of a Person whether
through the ownership of voting securities, by contract or otherwise.
"Applicable Margin" shall mean the rate per annum set forth below
opposite the quarterly ratio of the Debt of the Borrower and its Subsidiaries
(determined in accordance with GAAP) to EBITDA:
<TABLE>
<CAPTION>
Debt/EBITDA Prime Rate Loans Eurodollar Loans
----------- ---------------- ----------------
<S> <C> <C> <C>
0% 1.10%
< 1.75:1
0% 1.20%
< 2.25:1 but > 1.75:1
-
0% 1.30%
< 2.75:1 but > 2.25:1
-
0% 1.50%
> 2.75:1
-
</TABLE>
The Applicable Margin shall be determined and adjusted on the date that
is the first Banking Day of the month immediately following the date by which
the Borrower is required to provide financial information in accordance with the
provisions of Section 4.5(a) or 4.5(b), as the case may be, and the related
certificate required pursuant to Section 4.5(c) (each, an "Interest
Determination Date"), such that (1) for the fiscal quarter ending September 30,
the applicable Interest Determination Date shall be the following December 1,
(2) for the fiscal quarter ending December 31, the applicable Interest
Determination Date shall be the following March 1, (3) for the fiscal quarter
ending March 31, the applicable Interest Determination Date shall be the
following June 1and (4) for the fiscal year ending June 30, the applicable
Interest Determination Date shall be the following October 1; provided, however,
that in the event that the financial statements required to be delivered
pursuant to Section 4.5(a) or Section 4.5(b) (as the case may be) and the
related certificate required pursuant to Section 4.5(c) are not delivered when
due, then, during the period from the date upon which such financial statements
are required to be delivered until one (1) Banking Day following the date upon
which they actually are delivered, the highest rate shall be determined to be in
effect for the purposes of determining Applicable Margin during such period.
Such Applicable Margin shall be effective with respect to all then outstanding
Eurodollar Loans and Prime Rate Loans from such Interest Determination Date
until the next such Interest Determination Date. Notwithstanding the foregoing,
the initial Applicable Margin shall be determined as if the ratio of the Debt of
the Borrower and its Subsidiaries (determined in accordance with GAAP) to EBITDA
is <1.75:1.
"Banking Day" shall have the meaning set forth in the form of Revolving
Credit Note attached as Exhibit A hereto.
"Closing Date" shall have the meaning set forth in Section 1.1(a)
hereof.
"Collateral" shall have the meaning collectively set forth in Section 1
of the Security Agreement.
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<PAGE>
"Commitment" shall mean $35,000,000.
"Consolidated Net Income" or "Consolidated Net Loss" for any fiscal
period shall mean the amount which, in conformity with GAAP, would be set forth
opposite the caption "net income" (or any like caption) or "net loss" (or any
like caption), as the case may be, on a consolidated statement of earnings of
the Borrower and its Subsidiaries for such fiscal period.
"Debt" of any Person, at any date, without duplication, shall mean the
sum of (a) all indebtedness of such Person for borrowed money, (b) the deferred
purchase price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices), including without limitation the amount which the Borrower
or any Subsidiary is contractually obligated to pay to the seller(s), or to
directors, officers or employees of the seller(s), in connection with any
Permitted Acquisition after the closing thereof, (c) any other indebtedness of
such person which is evidenced by a note, bond, debenture or similar instrument,
(d) all obligations of such Person under Financing Leases, (e) all obligations
of such Person in respect of letters of credit and acceptances and letters of
credit issues or created for the account of such Person (including without
limitation such letters of credit issued by the Bank), (f) all liabilities
secured by any lien or other encumbrance (whether statutory, consensual or
otherwise) on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof and (g) all Debt of
the types referred to in clauses (a) through (f) above which is guaranteed
directly or indirectly by such Person.
"Default Rate" shall mean a fluctuating rate of interest, adjusted
daily, equal to the Prime Rate plus 3%.
"EBITDA" for any fiscal period shall mean the Consolidated Net Income
or Consolidated Net Loss of the Borrower and its Subsidiaries, as the case may
be, for such fiscal period, after excluding therefrom amounts included therein
on account of extraordinary gain and restoring thereto (a) depreciation and
amortization (including write-offs or write-downs of amortizable and depreciable
items), (b) the amount of interest expense of such person or entity (determined
on a consolidated basis in accordance with GAAP) for such period on the
aggregate principal amount of its consolidated Indebtedness and (c) the amount
of tax expense of such person or entity (determined on a consolidated basis in
accordance with GAAP) for such period. The Borrower shall include in any
calculation of Consolidated Net Income or Consolidated Net Loss the net income
or net loss of any Person then a Subsidiary that was not a Subsidiary at all
times during the fiscal period covered by such calculation (each such
Subsidiary, a "Transition Subsidiary"); provided, however, that if the
Consolidated Net Income or Consolidated Net Loss for any such fiscal period is
larger by reason of such inclusion, then EBITDA for such period shall be reduced
by thirty percent (30%) of the increase in EBITDA resulting from the inclusion
of such Transition Subsidiary.
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<PAGE>
"Environmental Complaint" shall mean any complaint, order, citation or
notice with regard to air emissions, water discharges, noise emissions or any
other environmental, health or safety matter affecting the Borrower.
"ERISA," "Plan," and "PBGC" shall have the meanings set forth in
Section 3.10 hereof.
"Eurocurrency Reserve Requirements" shall mean for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such Board)
maintained by a member bank of such System.
"Eurodollar Base Rate" shall mean with respect to any Eurodollar Loan
for any one month or three month Interest Period, the "London Interbank Offered
Rate" (LIBOR) listed in the "Money Rates" table of The Wall Street Journal on
the Banking Day immediately preceding the first day of such Interest Period, as
specified in any request made in accordance with Sections 1.3 and 1.5 hereof
(and rounded, if necessary, upward to the nearest 1/100 of 1%).
"Eurodollar Loans" shall mean each portion of the Revolving Credit Loan
the rate of interest applicable to which is based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded, if necessary, upward
to the nearest whole multiple of 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default" shall mean any of the events specified in Section
5.1 hereof. "Potential Default" shall mean the occurrence of any event or
existence of any condition which, with the giving of notice, would become an
Event of Default.
"Financial Statements" shall have the meaning set forth in Section 3.4
hereof.
"Financing Lease" shall mean any lease of property, real or personal,
the obligations of the lessee in respect of which are required (in accordance
with GAAP) to be capitalized on a balance sheet of the lessee.
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<PAGE>
"Hazardous Material" shall mean any oil, petroleum products or their
byproducts or any hazardous, toxic or dangerous waste, substance or material
defined as such in (or for purposes of) the Comprehensive Environmental
Response, Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law or any other federal, state or local statute, law, ordinance,
code, rule, regulation, order or decree (collectively, "Toxic Waste Laws"), as
now or any time hereafter in effect, regulating, relating to or imposing
liability or standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material.
"Interest Period" shall mean, with respect to any Eurodollar Loan: (a)
initially, the period commencing on the borrowing or conversion date, as the
case may be, with respect to such Eurodollar Loan and ending one, three or six
months thereafter, as selected by the Borrower in its notice of borrowing or
notice of conversion, as the case may be, given with respect thereto and (b)
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loan and ending one, three or six
months thereafter, as selected by the Borrower in a notice of borrowing
delivered to the Bank by 10:00 a.m., Baltimore, Maryland time, not later than 12
noon on the Banking Day immediately prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods are
subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Banking Day, such Interest
Period shall be extended to the next succeeding Banking Day unless the
result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end on
the immediately preceding Banking Day;
(2) any Interest Period that would otherwise extend beyond the
Maturity Date shall end on such maturity date or such date of final
payment, as the case may be;
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Banking Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Banking Day
of a calendar month.
(4) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Loan Documents" shall mean, collectively, this Agreement, the
Revolving Credit Note and the Security Documents.
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<PAGE>
"Maturity Date" shall have the meaning set forth in Section 1.1(a)
hereof.
"Obligations" shall mean, collectively, (i) the payment of all
principal of and interest on the Revolving Credit Note as and when the same
become due and payable (whether by lapse of time, acceleration or otherwise),
(ii) the payment of all interest, fees and charges payable by the Borrower under
the terms of the Loan Documents, (iii) the payment of all other indebtedness,
obligations and liabilities arising under, and the observance and performance of
all covenants and agreements contained in, the Loan Documents, (iv) the payment
of all principal of and interest on any other loans, credits or advances at any
time heretofore or hereafter made to the Borrower by the Bank, whether or not
related to or arising from the Revolving Credit Loan or the Loan Documents, and
(v) the payment in full of all expenses and charges, legal or otherwise,
including reasonable attorneys' fees, suffered or incurred by the Bank in
collecting or enforcing payment of the Revolving Credit Note or any or all of
the other foregoing indebtedness or in realizing upon, protecting or preserving
any collateral security for the Revolving Credit Note or such other
indebtedness.
"Permitted Acquisition" shall mean any acquisition by the Borrower,
directly or through any Subsidiary, of (i) all or substantially all of the
assets of any Person or (ii) a majority of the issued and outstanding voting
shares (that is, shares entitled to vote for corporate directors or members of a
similar governing body) of any Person, including any such acquisition which
takes the form of a merger, consolidation, corporate reorganization or similar
transaction as long as the Borrower, if a merging party, is the surviving entity
in any such transaction, provided that no Default or Event of Default has
occurred and is then continuing or would otherwise exist after giving effect to
any such Permitted Acquisition.
"Person" shall mean any individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture or
other entity of whatever nature.
"Premises" shall mean the significant sites of the Borrower's
operations, as set forth on Schedule I attached hereto.
"Prime Rate" shall mean the fluctuating interest rate set by the Bank
from time to time as an interest rate base for borrowings. The Prime Rate is one
of several interest rate bases used by the Bank, and the Bank lends at rates
above and below the Prime Rate. On the date hereof the Prime Rate is eight and
one-quarter percent (8 1/4%) per annum. All interest rates established or
imposed under the Loan Documents which are based upon the Prime Rate shall be
adjusted upwards and downwards on and as of the date of any change in the Prime
Rate and shall be calculated on the basis of a 360-day year factor applied to
actual days elapsed.
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"Prime Rate Loans" shall mean each portion of the Revolving Credit Loan
the rate of interest applicable to which is based upon the Prime Rate.
"Revolving Credit Loan" shall have the meaning set forth in the second
recital paragraph hereof.
"Revolving Credit Note" shall have the meaning set forth in the second
recital paragraph hereof.
"Security Agreement" and "Security Documents" shall have the meanings
set forth in Section 7.1 hereof.
"Subsidiary" shall mean each Person (if any) actively engaged in
business, a majority of the issued and outstanding voting shares (that is,
shares entitled to vote for corporate directors or members of a similar
governing body) of which shall, at the time as of which any determination is
being made, be owned by the Borrower either directly or through Subsidiaries.
"Taxes" shall have the meaning set forth in Section 1.4(d) hereof.
"UCC" shall mean the Uniform Commercial Code, as in effect in any
applicable jurisdiction.
"Year 2000 Problem" shall mean the inability of computer applications
used by the U.S. federal government to recognize and perform properly
date-sensitive functions involving certain dates prior to, and any date after,
December 31, 1999.
"1996 Loan Agreement" shall have the meaning set forth in the first
recital paragraph hereof.
"1996 Revolving Credit Note" shall have the meaning set forth in the
first recital paragraph hereof.
"1996 Term Notes" shall have the meaning set forth in the first recital
paragraph hereof.
2.2. Amendments, etc. Included. All defined terms herein for
agreements, instruments and other documents shall be deemed to include any and
all amendments, modifications, extensions and renewals thereof, substitutions
therefor and supplements, exhibits and schedules thereto.
3. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrower represents and warrants to the Bank that:
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3.1. Organization and Authority; Conflicting Laws and Agreements. The
Borrower is a corporation duly organized and existing and is in good standing
under the laws of the jurisdiction of its incorporation, has full and adequate
corporate power to own its property and to carry on its business as now
conducted, is duly licensed or qualified to do business in all jurisdictions
where the nature of its business or the character of its properties requires
such licensing or qualification and has full right, power and authority to enter
into this Agreement and the Security Documents, to make the borrowings herein
provided for, to issue the Revolving Credit Note and to perform each and all of
the matters and things provided for in this Agreement and in the Security
Documents; and the Loan Documents do not, nor will the performance or observance
by the Borrower or any Subsidiary of any of the matters or things provided for
in any Loan Document, contravene, conflict with or in any way be restricted by
any law, rule or regulation or order of court applicable to the Borrower, any
Subsidiary or any of their respective businesses, operations or properties or
any provision of any organizational document of the Borrower or any lease,
mortgage, indenture, contract or agreement of or affecting the Borrower, any
Subsidiary or any of their respective properties.
3.2. Subsidiaries. As of the date hereof, the Borrower has no
Subsidiaries. The foregoing representation and warranty shall not be deemed to
prohibit the Borrower or any Subsidiary from effecting a Permitted Acquisition.
3.3. Margin Stock. Neither the Borrower nor any Subsidiary is engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of the Revolving Credit
Loan hereunder will be used to purchase or carry any margin stock or to extend
credit to others for that purpose.
3.4. Financial Statements. The consolidated financial statements of the
Borrower and the Subsidiaries audited by Deloitte & Touche LLP for the fiscal
year ended June 30, 1998 (the "Financial Statements"), which have heretofore
been furnished to the Bank, are complete and correct and fairly present the
consolidated financial condition of the Borrower and the Subsidiaries as of said
date and the results of their operations for the period covered thereby, all in
accordance with GAAP, except as otherwise noted therein. Neither the Borrower
nor any Subsidiary has any liabilities which are material to the Borrower and
such Subsidiary, direct or indirect, fixed or contingent, other than as
indicated in the Financial Statements.
3.5. Financial Condition. Since the date of the Financial Statements,
there have been no material adverse changes in the condition, financial or
otherwise, of the Borrower and the Subsidiaries nor any changes in the
operations of the Borrower and the Subsidiaries except those occurring in the
ordinary course of business.
3.6. Litigation; Tax Returns; Governmental Approvals. There is no
litigation or governmental proceeding pending, nor to the knowledge of the
Borrower threatened, against the Borrower or any Subsidiary which, if adversely
determined, would result in
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<PAGE>
any material adverse change in the consolidated financial condition, properties,
business or operations of the Borrower or the performance by the Borrower of its
obligations hereunder, under the Security Documents or under the Revolving
Credit Note, except as previously disclosed in writing to the Bank. All federal,
state and local income tax returns of the Borrower for the tax year ended June
30, 1998, and for all tax years ended prior to said date, have been filed with
the appropriate taxing authorities, and all taxes shown due thereon have been
timely paid. To the best of the Borrower's knowledge there are no objections to
or controversies in respect of any of the income tax returns of the Borrower and
the Subsidiaries for any fiscal year ended after said date pending or
threatened, except for those (if any) previously disclosed in writing to the
Bank, the Borrower warranting that such disclosures are true and accurate as of
the date hereof. No authorization, consent, approval, license, exemption, filing
or registration from or with any court or governmental department, agency or
instrumentality, is or will be necessary for the valid execution, delivery or
performance by the Borrower of any of the Loan Documents.
3.7. Liens. There are no liens, security interests or encumbrances on
any of the assets or properties of the Borrower or any Subsidiary, except as
permitted by Section 4.7 hereof.
3.8. Enforceability. The Loan Documents are the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general application relating to or affecting the enforcement of creditor's
rights and by general principles of equity.
3.9. No Defaults. The Borrower is and will remain in full compliance
with all of the terms and conditions hereof, and no Event of Default or
Potential Default has occurred and is continuing.
3.10. ERISA. The Borrower and the Subsidiaries are in compliance in all
material respects with the Employee Retirement Income Security Act of 1974
("ERISA") as amended, to the extent applicable to them or to any plan, including
both single employer and multi-employer plans subject to Title IV of ERISA and
established or maintained for employees or former employees of the Borrower, any
Subsidiary or any member of the "controlled group" (as defined in ERISA) (such a
plan being hereinafter referred to as a "Plan"). Neither the Borrower nor any
Subsidiary has received any notice to the contrary from the Pension Benefit
Guaranty Corporation ("PBGC") or any other governmental entity or agency, and no
"reportable event" (as defined in ERISA) has occurred and is continuing. Except
as specifically otherwise disclosed in any information given to the Bank, the
present value of all vested benefits (determined on PBGC-guaranteed benefits and
using PBGC interest and mortality assumptions) under all single-employer Plans
maintained by the Borrower or a commonly-controlled Person does not, as of the
most recent valuation date, exceed the value of the assets of such Plans
allocable to such benefits.
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3.11. Commercial Loan. The Revolving Credit Loan is a "commercial loan"
within the meaning of Section 12-101(c) of the Commercial Law Article of the
Annotated Code of Maryland, as amended.
3.12. Hazardous Materials. Except as previously disclosed in writing to
the Bank, to the best of its knowledge, the Borrower has never caused or
permitted any Hazardous Material to be disposed of on, under or at any of its
properties (including, without limitation, the Premises), and none of its
properties have ever been used (whether by the Borrower or, to its best
knowledge, by any other Person) as a dump site or storage (whether permanent or
temporary) site for any Hazardous Material. To the best of the Borrower's
knowledge the Premises contain no underground tanks or asbestos, nor any
transformers containing Polychlorinated Biphenyls.
3.13. Assignments under the Federal Assignment of Claims Act. Except as
previously disclosed in writing to the Bank, neither the Borrower nor any
Subsidiary has executed an assignment of a government contract (i) with respect
to which the United States or any of its departments, agencies or
instrumentalities is currently making payments, and (ii) which has been filed,
along with a notice of assignment, pursuant to the Federal Assignment of Claims
Act.
4. COVENANTS.
---------
So long as the Revolving Credit Note remains outstanding, the
Borrower hereby covenants and agrees with the Bank as follows:
4.1. Payment of Taxes and Other Claims. The Borrower will, and will
cause each Subsidiary to, pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, judgments, assessments
and governmental charges levied or imposed upon the Borrower or any Subsidiary
or upon the income, profits or property of the Borrower or any Subsidiary and
(b) all lawful claims for labor, materials and supplies which if unpaid might by
law become a lien upon the property of the Borrower or any Subsidiary; provided,
however, that the Borrower shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim, the amount,
applicability or validity of which is being contested diligently and in good
faith by appropriate proceedings and for which the Borrower or the Subsidiary
concerned shall have set aside on its books adequate reserves with respect
thereto; provided, further, that the foregoing proviso shall not relieve the
Borrower of its obligation to comply with Section 4.7 hereof; and provided,
further, that such proceedings do not materially impair the value or security of
the Collateral or any part thereof.
4.2. Maintenance of Properties. The Borrower will cause the Premises
and all other properties owned, leased or operated by the Borrower or any
Subsidiary and used or held for use in the conduct of their respective
businesses to be maintained and kept in
17
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good condition, repair and working order and supplied with all necessary
equipment, and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the reasonable
judgment of the Borrower may be necessary or advisable so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
4.3. Corporate Existence. The Borrower will do or cause to be done, and
will cause each Subsidiary to do or cause to be done, all things necessary to
preserve and keep in full force and effect their existence, organizational
status and good standing in the state of their organization and in every other
jurisdiction where the character of their properties or the nature of their
businesses requires them to qualify to do business, as well as the rights
(charter and statutory) and franchises of the Borrower and each Subsidiary. The
Borrower will not create any new subsidiaries, nor change its name, identity or
corporate structure, nor transact business under any trade name, nor change the
location of any material item of the Collateral or of its chief executive
offices or principal place of business without, in each case, first giving the
Bank thirty (30) days' prior written notice of its intent to do so.
4.4. Maintenance of Insurance. In addition to the specific requirements
set forth in Section 2(f) of the Security Agreement, the Borrower will maintain,
and will cause each Subsidiary to maintain, insurance coverage by good and
responsible insurance underwriters in such forms and amounts and against such
risks as are customary for companies engaged in similar businesses and owning
and operating similar properties. The Borrower shall from time to time file with
the Bank, promptly upon its request, a detailed list of the insurance then in
effect covering the Borrower's properties (including, without limitation, the
Collateral), stating the names of the insurance companies, the amounts and rates
of the insurance, the dates of the expiration thereof and the properties and
risks covered thereby.
4.5. Financial Information, Tax Returns and Reports. The Borrower will,
and will cause each Subsidiary to, employ GAAP and furnish to the Bank:
(a) as soon as available and in any event within forty-five
(45) days after the end of each interim fiscal quarter of each fiscal year of
the Borrower (or on the next Banking Day thereafter, if the forty-fifth day is
not a Banking Day), a consolidated and consolidating balance sheet of the
Borrower and the Subsidiaries as of the end of such interim fiscal period, and a
consolidated and consolidating statement of earnings of the Borrower and the
Subsidiaries for such fiscal period and for the period beginning on the first
day of such fiscal year and ending on the date of such balance sheet, setting
forth in comparative form the corresponding figures for the corresponding period
of the preceding fiscal year, all in reasonable detail and certified by the
chief financial officer of the Borrower;
(b) as soon as available and in any event within ninety (90)
days after the last day of each fiscal year (or on the next Banking Day
thereafter, if the ninetieth day is
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<PAGE>
not a Banking Day), consolidated financial statements which have been audited by
Deloitte & Touche LLP or another firm of independent public accountants of
recognized standing selected by the Borrower, covering the operations of the
Borrower and the Subsidiaries as of the end of such year and a consolidated
statement of earnings, shareholders' equity and cash flow for the Borrower and
the Subsidiaries for the year then ended, each on a comparative basis with
corresponding financial statements for the preceding fiscal year, which
financial statements shall be accompanied by a report of such independent public
accountants without exceptions or qualifications not acceptable to the Bank and
stating in substance that such financial statements have been prepared in
accordance with GAAP and that the audit of accounts in connection with such
financial statements has been made in accordance with GAAP and, accordingly,
included such tests of accounting records and other auditing procedures as such
accountants considered necessary or advisable under the circumstances; and the
Borrower shall also provide the Bank with such unaudited consolidating financial
statements as are used to prepare the foregoing financial statements;
(c) each set of financial statements delivered to the Bank
pursuant to paragraphs (a) and (b) above shall be accompanied by the written
certificate of the Borrower, signed by its chief financial officer, (i) to the
effect that such officer has reexamined the terms and provisions of this
Agreement and the Security Documents and that, to the best of his knowledge, the
Borrower has not been in default during the preceding fiscal period in the
fulfillment of any of the terms, covenants, provisions or conditions hereof or
thereof, and that no Event of Default or Potential Default has occurred and is
continuing as of the date of said statement; or if the signer is aware of any
such Event of Default or Potential Default, he shall disclose in reasonable
detail the nature thereof and such curative action as may be or has been taken
by the Borrower and (ii) setting forth the computations used by the Borrower in
determining (as of the end of such fiscal period) compliance with the covenant
contained in Section 4.15 hereof;
(d) [intentionally omitted];
---------------------
(e) [intentionally omitted];
---------------------
(f) promptly upon any filing thereof by the Borrower or any
Subsidiary with the Securities and Exchange Commission, any annual, periodic or
special report or registration statement (without exhibits) generally available
to the public;
(g) promptly upon any request therefor by the Bank, a copy of
any application for any patent, copyright, trademark, trade name or other
intellectual property right filed by the Borrower or any Subsidiary with the
United States Patent and Trademark Office, the United States Copyright Office,
or any similar office or agency of the United States or any State thereof;
(h) such additional information (including, without
limitation, federal, state and local income tax and property tax returns and
separate financial statements) for
19
<PAGE>
the Borrower and/or any Subsidiary as the Bank may reasonably request concerning
the Borrower and such Subsidiary(ies) in order to enable the Bank to determine
whether the covenants, terms and provisions of this Agreement have been complied
with by the Borrower; and for that purpose the Borrower agrees that all
pertinent and relevant books, documents and vouchers relating to its business
and affairs and those of its Subsidiaries shall at all times during regular
business hours be open to the inspection of such accountant or other agent (who
may make copies of all or any part thereof) as shall from time to time be
designated by the Bank; and
(i) promptly upon any officer of the Borrower learning of the
same, notice of the occurrence of any Event of Default, notice of any material
change in the financial status of the Borrower or any Subsidiary, and notice of
the institution of any litigation against the Borrower or any Subsidiary which
could, if adversely determined, have a material, adverse effect on the financial
condition or operations of the Borrower or any Subsidiary.
The Bank agrees that it will hold and maintain confidential all
financial information, Backlog Reports and other proprietary information with
respect to the Borrower and its Subsidiaries and all information obtained during
inspections of the books and records of Borrower and its Subsidiaries which are
specifically designated by the Borrower as confidential and will not, without
the consent of the Borrower, disclose such information to any non-affiliated
third party. Notwithstanding the foregoing obligation of the Bank, the Borrower
hereby authorizes the Bank to disclose information obtained pursuant to this
Agreement (i) where required by governmental or regulatory authorities and (ii)
to its outside and in-house legal counsel, auditors, examiners and accountants.
In addition, the foregoing obligation of the Bank shall not apply in connection
with any exercise of the Bank's rights and remedies under the Loan Documents
arising during any period(s) when an Event of Default has occurred and is
continuing.
4.6. Indebtedness. The Borrower covenants that it will not, and will
not permit any Subsidiary to, create, incur, assume or suffer to exist any
indebtedness for borrowed money (including as such all indebtedness representing
the deferred purchase price of property), except:
(a) the indebtedness evidenced by the Revolving Credit Note;
(b) indebtedness or leases of the Borrower or any Subsidiary
outstanding on the date hereof and disclosed or reflected in the Financial
Statements or in the footnotes thereto;
(c) indebtedness of the Borrower or any wholly owned
Subsidiary to any other wholly owned Subsidiary;
(d) purchase money indebtedness of the Borrower and all
Subsidiaries;
20
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(e) any existing or future indebtedness owed solely to the
Bank or any Payee under the Revolving Credit Note;
(f) leases entered into by the Borrower or any wholly owned
Subsidiary in the ordinary course of business;
(g) any unsecured indebtedness in addition to any of the
foregoing, which is subordinated to the Revolving Credit Note and which in the
aggregate does not exceed $1,500,000 at any time; and
(h) with respect to any Permitted Acquisition, the amount
which the Borrower or any Subsidiary is contractually obligated to pay to the
seller(s), or to directors, officers or employees of the seller(s), after the
closing thereof.
4.7. Liens. The Borrower covenants that it will not, and will not
permit any Subsidiary to, create, assume or suffer to exist any lien, security
interest or encumbrance upon any of their property or assets, whether now owned
or hereafter acquired, except:
(a) liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings;
(b) other liens, security interests, charges or encumbrances
incidental to the conduct of their businesses or the ownership of their
properties and assets which were not incurred in connection with the borrowing
of money or the obtaining of advances or credit, and which do not, in the
aggregate, materially detract from the value of their properties or assets or
materially impair the use thereof in the operation of their businesses;
(c) liens and security interests existing on the date hereof
and disclosed or reflected in the Financial Statements or in the footnotes
thereto;
(d) liens and security interests in favor of the Bank; and
(e) liens and security interests on property or assets
securing indebtedness incurred to purchase such property or assets (but not
extending to any other property or assets), to the extent permitted under
Section 4.6(d) hereof.
4.8. Disposition of Stock and Indebtedness. The Borrower covenants that
it will not, and will not allow any Subsidiary to, sell, transfer or otherwise
dispose of, or part with control of, any shares of stock or indebtedness of any
Subsidiary, except to the Borrower or any other wholly owned Subsidiary or to
the Bank as collateral security for the Revolving Credit Note.
21
<PAGE>
4.9. Investments, Loans, Advances, Guarantees and Contingent
Liabilities. The Borrower covenants that it will not, and will not permit any
Subsidiary to, make or permit to remain outstanding any loan or advance to, or
guarantee, endorse or otherwise be or become contingently liable, directly or
indirectly, in connection with the obligations, stock or dividends of, or own,
purchase or acquire any stock, obligations or securities of, or any other
interest in, or make any capital contribution to, any other Person (including
any joint venture), except that the Borrower or any Subsidiary may:
(a) permit to remain outstanding all presently existing loans,
advances and investments in or to any Subsidiary and disclosed or reflected in
the Financial Statements or in the footnotes thereto;
(b) make loans, advances and investments in or to any wholly
owned Subsidiary;
(c) acquire and own stock, obligations or securities received
in settlement of debts (created in the ordinary course of business) owing to the
Borrower or any Subsidiary;
(d) own, purchase or acquire prime commercial paper rated P-1
by Moody's Investor Services, Inc. and A-1 by Standard and Poors Corporation,
bankers acceptances of, and certificates of deposit in, the Bank or any other
United States commercial bank with capital resources in excess of $500,000,000,
obligations of the United States Government or any agency thereof, and
obligations guaranteed by the United States Government, all of the foregoing in
each case to become due within one (1) year from the date of purchase;
(e) permit to exist guarantees of obligations of any wholly
owned Subsidiary, which obligations are not prohibited by Section 4.6;
(f) make deposits and extensions of credit and endorse
negotiable instruments for deposit or collection, all in the ordinary course of
business; and
(g) effect Permitted Acquisitions.
4.10. Merger and Sale of Assets. The Borrower covenants that it will
not, and will not permit any Subsidiary to, merge or consolidate with any other
Person, or sell, lease, transfer or otherwise dispose of all or any substantial
part of their assets, except that:
(a) any Subsidiary may merge with the Borrower (provided that
such Borrower shall be the continuing or surviving corporation) or with any one
or more other Subsidiaries;
22
<PAGE>
(b) any Subsidiary may sell, lease, transfer or otherwise
dispose of any of its assets to the Borrower or any Subsidiary; and
(c) the Borrower or any Subsidiary may effect any merger which
constitutes a Permitted Acquisition.
4.11. Dealings with Affiliates. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction with an Affiliate except on
terms no less favorable to the Borrower or such Subsidiary than if such
transaction were an arm's length transaction with a non-affiliated Person.
4.12. Limitations on Certain Contracts. The Borrower will not, and will
not permit any Subsidiary to, enter into or be a party to:
(a) any contract providing for the making of loans, advances
or capital contributions by the Borrower or any Subsidiary to any Person or for
the purchase of any property from any Person (except for employee loans or
advances in the ordinary course of business), in each case in order to enable
such Person to maintain working capital, net worth or any other balance sheet
condition or to pay debts, dividends or expenses;
(b) any contract for the purchase by the Borrower or any
Subsidiary of materials, supplies or other property or services if such contract
(or any related document) requires that payment for such materials, supplies or
other property or services shall be made regardless of whether or not delivery
of such materials, supplies or other property or services is ever made or
tendered;
(c) any contract to rent or lease (as lessee) any real or
personal property if such contract (or any related document) provides that the
obligation to make payments thereunder is absolute and unconditional under
conditions not customarily found in commercial leases then in general use or
requires that the lessee purchase or otherwise acquire securities or obligations
of the lessor;
(d) any contract for the sale or use of materials, supplies or
other property or the rendering of services which requires that payment to the
Borrower or any Subsidiary for such materials, supplies or other property, or
the use thereof, or for such services shall be subordinated to any indebtedness
of the purchaser or user of such materials, supplies or other property or the
Person entitled to the benefit of such services owed or to be owed to any other
Person; or
(e) any other contract which, in economic effect, is
substantially equivalent to a guarantee by the Borrower or any Subsidiary,
except as permitted by Section 4.9 hereof.
4.13. ERISA. The Borrower will, and will cause each Subsidiary to,
promptly pay and discharge all obligations and liabilities arising under ERISA
of a character
23
<PAGE>
which, if unpaid or unperformed, might result in the imposition of a lien or
charge against any of their properties or assets, and will promptly notify the
Bank of the occurrence of any reportable event (as defined in ERISA) which might
result in the termination by PBGC of any Plan or of termination of any such Plan
or appointment of a trustee therefor. The Borrower will notify the Bank of its
or any Subsidiary's intention to terminate or withdraw from any Plan and will
not, and will not permit any Subsidiary to, terminate any such Plan or withdraw
therefrom unless the Borrower or such Subsidiary shall be in compliance with all
of the terms and conditions of this Agreement after giving effect to any
liability to PBGC or to the Plan resulting from such termination or withdrawal.
For purposes of this Section 4.13, the Bank hereby acknowledges notification
from the Borrower to the effect that the employee stock ownership plan of its
announced acquisition candidate, Management Consulting & Research Inc., is
intended to be terminated in connection with such acquisition.
4.14. Issuance of Stock. The Borrower shall not permit any Subsidiary
(either directly, or indirectly by the issuance of rights or options for, or
securities convertible into, such shares) to issue, sell or dispose of any
shares of any class of its stock, except to the Borrower or any other wholly
owned Subsidiary.
4.15. Financial Ratio. Commencing with the fiscal year ending June 30,
2000, the Borrower shall not, and shall not permit any Subsidiaries to, directly
or indirectly, permit for any fiscal quarter the ratio of the Debt of the
Borrower and its Subsidiaries (determined on a consolidated basis in accordance
with GAAP) to EBITDA, calculated for the period of four consecutive fiscal
quarters ending on the last day of such fiscal quarter, to be greater than
3.00:1.
4.16. Obligations of the Borrower Unconditional. The payment and
performance by the Borrower of its obligations hereunder and under the Revolving
Credit Note and the Security Documents shall be absolute and unconditional,
irrespective of any defense or right of set-off, recoupment or counterclaim it
might otherwise have against the Bank or any other Person; and the Borrower
shall pay absolute net during the term thereof all payments to be made on
account of the Revolving Credit Loan as prescribed in the Revolving Credit Note
and all other payments required hereunder and thereunder, free of all deductions
and without any abatement, diminution or set-off whatsoever.
4.17. Businesses. The Borrower will not, and will not permit any
Subsidiary to, make or suffer to be made any material change in the manner in
which their businesses are conducted. The Borrower shall not be deemed to have
breached or defaulted under the foregoing covenant simply because the U.S.
federal government shall have failed to make or delayed making to the Borrower
or any Subsidiary, in whole or in part, any payment under a government contract
as a result of the Year 2000 Problem.
4.18. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all applicable federal, state and local laws, rules,
ordinances and regulations where noncompliance could have a material adverse
effect on their respective
24
<PAGE>
financial conditions, properties, businesses or operations; provided, however,
that the Borrower or any Subsidiary, as the case may be, may in good faith and
by appropriate proceedings contest the applicability or validity of any such
law, so long as such Borrower or such Subsidiary is prosecuting such contest
diligently and has set aside on its books adequate reserves with respect
thereto.
4.19. Hazardous Materials. The Borrower will indemnify and defend the
Bank and hold the Bank harmless from and against any and all losses,
liabilities, damages, injuries, costs, expenses and claims of any and every kind
whatsoever paid, incurred or suffered by, or asserted against the Bank for, with
respect to, or as a direct or indirect result of, the presence on or under, or
the escape, seepage, leakage, spillage, discharge, emission, discharging or
release from the Premises or any of the Borrower's other properties of, any
Hazardous Material (including, without limitation, any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under any Toxic
Waste Laws), regardless of whether or not caused by, or within the control of,
the Borrower. If the Borrower receives any notice of (a) the happening of any
event involving the use, spill, discharge or clean-up of any Hazardous Material
or (b) an Environmental Complaint from any Person, including, but not limited
to, the United States Environmental Protection Agency, then the Borrower shall
promptly give both oral and written notice of the same to the Bank. Upon
obtaining knowledge of an Environmental Complaint from any source and by any
means, the Bank shall have the right, but not the obligation, upon five (5)
Banking Days' prior written notice to the Borrower to take such reasonable
actions as it deems necessary or advisable to clean up, remove, resolve or
minimize the impact of, or otherwise deal with, any such Hazardous Material or
Environmental Complaint. Any and all sums expended by the Bank for such
purposes, together with interest thereon at the Default Rate, shall be
immediately reimbursed by the Borrower and shall constitute an Obligation which
is secured by the Collateral.
4.20. Material Agreements. Upon the request of the Bank from time to
time, the Borrower shall deliver a list of all material leases, mortgages,
indentures, contracts or agreements of or affecting the Borrower, any Subsidiary
or any of their respective properties and true and correct copies of such
document(s) as the Bank may specify.
4.21. Assignments under the Federal Assignment of Claims Act. Neither
the Borrower nor any Subsidiary shall execute any assignment of any government
contract, to which the Borrower or any such Subsidiary is a party (either as a
contractor or subcontractor), in favor of any person other than the Bank without
the prior written consent of the Bank. In addition, the Borrower will promptly
notify the Bank upon its discovery of any attempt by any person other than the
Bank to file such an assignment under the Federal Assignment of Claims Act.
4.22. Additional Subsidiaries. (a) With respect to any Subsidiary
created or acquired after the Closing Date by the Borrower, the Borrower shall
(i) cause such Subsidiary promptly to become a party to the Security Agreement
pursuant to
25
<PAGE>
documentation to be in form and substance reasonably satisfactory to the Bank,
(ii) execute and deliver such amendments to this Agreement requested by the Bank
to reflect the existence of such new Subsidiary, (iii) execute and deliver a
Pledge and Security Agreement in form and substance satisfactory to the Bank to
effect the pledge to the Bank of the equity interests of such new Subsidiary
thereunder and (iv) if so requested by the Bank, deliver to the Bank legal
opinions relating to the matters described in clauses (i) through (iii)
immediately preceding and such other matters as the Bank may reasonably require,
which opinions shall be in form and substance reasonably satisfactory to the
Bank.
(b) With respect to any Subsidiary created or acquired after
the Closing Date by the Borrower, the Borrower shall (i) designate such
Subsidiary as a "Borrower" hereunder (an "Additional Borrower"), cause such
Additional Borrower promptly to become a party to this Agreement pursuant to
documentation to be in form and substance reasonably satisfactory to the Bank,
(iii) execute and deliver such amendments to this Agreement and the other Loan
Documents (including without limitation the Revolving Credit Note) requested by
the Bank to reflect the existence of such Additional Borrower, (iv) execute and
deliver such other approvals, certificates or documents requested by the Bank in
its reasonable discretion and (v) if so requested by the Bank, deliver to the
Bank legal opinions relating to the matters described in clauses (i) through
(iv) immediately preceding and such other matters as the Bank may reasonably
require, which opinions shall be in form and substance reasonably satisfactory
to the Bank.
5. EVENTS OF DEFAULT AND REMEDIES.
------------------------------
5.1. Events of Default. The occurrence or existence of any one or more
of the following events or conditions shall constitute an Event of Default:
(a) (i) default in the payment when due of any installment of
the principal of or interest on any Note, whether at the stated maturity thereof
or at any other time provided in such Note or in this Agreement, or (ii) default
for a period of five (5) days after notice in the payment when due of any other
amount payable by the Borrower under any Loan Document;
(b) default in the observance or performance of any covenant
set forth in Sections 4.6 through 4.13, 4.15 or 4.17 hereof;
(c) default in the observance or performance by the Borrower
of any other provision of this Agreement or any of the Security Documents which
is not remedied within thirty (30) days after notice thereof to the Borrower by
Bank; provided, however, that if such default cannot be corrected within thirty
(30) days, it shall not be an Event of Default so long as, in the opinion of the
Bank, the Borrower is diligently taking appropriate corrective action to cure
the same and such default will not, in the sole judgment of the Bank, impair the
security for the Revolving Credit Loan;
26
<PAGE>
(d) a default shall occur under any evidence of indebtedness
issued, assumed or guaranteed by the Borrower or any Subsidiary (other than any
such indebtedness owing by any Subsidiary to the Borrower or to another
Subsidiary) or under any indenture, agreement or other instrument under which
the same may be issued, and such default shall continue for the period of time
(if any) necessary to permit the acceleration of the maturity of any such
indebtedness in the aggregate amount of $250,000 or more;
(e) any representation or warranty made by the Borrower in
this Agreement or any of the Security Documents, or in any of the exhibits
hereto or thereto, or in any opinion, report, statement (including, without
limitation, financial statements) or certificate furnished by it pursuant to
this Agreement or any of the Security Documents, proves to have been false,
misleading or incomplete in any material respect as of the date of the issuance
or making thereof;
(f) the Borrower or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States Bankruptcy
Code, as amended, (ii) not pay, or admit in writing its inability to pay, its
debts generally as they become due or suspend payment of its obligations, (iii)
become insolvent or make an assignment for the benefit of creditors, (iv) apply
for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, conservator, liquidator or similar official for it or any
substantial part of its property, (v) institute any proceeding seeking an order
for relief or other protection under the United States Bankruptcy Code, as
amended, or seeking dissolution, winding up, liquidation, reorganization,
arrangement, marshalling of assets, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (vi) fail to contest in
good faith any appointment or proceeding described in Section 5.1(g) hereof, or
(vii) take any corporate action in furtherance of any of the foregoing purposes;
(g) a custodian, receiver, trustee, conservator, liquidator or
similar official shall be appointed for the Borrower or any Subsidiary or any
substantial part of any of their respective properties, or a proceeding for such
purposes or the purposes described in Section 5.1(f) hereof shall be instituted
against the Borrower or any Subsidiary and such appointment continues
undischarged or any such proceeding continues undismissed or unstayed for a
period of thirty (30) days;
(h) any final judgments, writs or warrants of attachment or of
any similar processes aggregating in excess of $250,000 shall be entered or
filed against the Borrower, any Subsidiary or against any of their properties or
assets and remain unpaid, unvacated, unbonded or unstayed on appeal for a period
of five (5) days after entry or filing;
27
<PAGE>
(i) any "reportable event" (as defined in ERISA) which
constitutes grounds for the termination of any Plan of the Borrower or any
member of the "controlled group" (as defined by ERISA) or for the appointment by
the appropriate United States District Court of a trustee to administer or
liquidate any such Plan, shall have occurred and be continuing thirty (30) days
after written notice of such effect shall have been given to the Borrower by the
PBGC or the Bank; or any such Plan shall be terminated; or the Borrower or any
member of the controlled group shall have withdrawn from such Plan or a trustee
shall be appointed by the appropriate United States District Court to administer
any such Plan; or the PBGC shall institute proceedings to administer or
terminate any such Plan; and in the case of vested liabilities allocable to, or
the withdrawal liability of the Borrower or any members of the controlled group
with respect to, such Plans shall exceed (either singly or in the aggregate in
the case of any such liability arising under more than one such Plan and in the
case of more than one liability arising under one or more such Plans) 5% of
consolidated assets of the Borrower and its Subsidiaries (as determined in
accordance with GAAP);
(j) the Borrower or any Subsidiary shall lose any license,
franchise or permit which materially affects their business operations as
presently conducted, if the same is not restored within thirty (30) days after
such loss.
5.2. Acceleration. (a) When any Event of Default (other than any Event
of Default described in Sections 5.1(f) and (g) hereof) has occurred and is
continuing, the Bank may declare the principal of and the accrued interest on
the Revolving Credit Note to be forthwith due and payable and thereupon the
Revolving Credit Note, including both principal and interest, shall be and
become immediately due and payable, together with all other amounts payable
under the Loan Documents, without further demand, presentment, protest or notice
of any kind.
(b) When any Event of Default described in Section 5.1(f) or
(g) hereof has occurred and is continuing, then the Revolving Credit Note shall
immediately become due and payable, together with all other amounts payable
under the Loan Documents, without presentment, demand, protest or notice of any
kind.
5.3. Costs of Collection. The Borrower agrees to pay to the Bank all
expenses and costs incurred or paid by the Bank, including reasonable attorneys'
fees and court costs, in connection with any default by the Borrower hereunder
or in connection with the enforcement of any of the terms hereof or of the
Revolving Credit Note or any Security Document or in connection with protecting
or realizing upon any collateral for the Obligations, including any of the
foregoing incurred in connection with any bankruptcy, reorganization or similar
proceedings instituted by or against the Borrower or any Subsidiary.
5.4. Consent to Jurisdiction; Waiver of Jury Trial. (a) The Borrower
hereby agrees that any action or proceeding with respect to this Agreement or
the Revolving Credit Note or any action or proceeding brought to enforce any
breach hereof or thereof
28
<PAGE>
against the Borrower or any of its property may be brought in any federal or
state court situated in the State of Maryland and/or in any other court having
jurisdiction over the subject matter, in one or more actions or proceedings, all
at the sole election of the Bank, and by execution and delivery of this
Agreement, the Borrower irrevocably consents to jurisdiction in each such court.
(b) The Borrower irrevocably waives any right it may have to a
trial by jury in any action or proceeding described in the foregoing Section
5.4(a), and hereby acknowledge that this waiver is a material provision of this
Agreement and shall be specifically enforceable.
5.5. Service of Process. If, for any reason, the Borrower is unable to
receive service of process in the manner provided by the Maryland Rules of
Procedure, then the Borrower hereby irrevocably appoints the State Department of
Assessments and Taxation as its agent for the purpose of gaining jurisdiction
over the Borrower in the State of Maryland in connection with any of the
Obligations; provided, however, that the Bank shall promptly notify the Borrower
in writing of any such service of process.
5.6. Acceleration of Other Obligations to Bank. When any Event of
Default has occurred and is continuing, the Bank may declare any and/or all
other indebtedness of the Borrower or any Subsidiary owing to the Bank, whether
now existing or created in the future, to be immediately due and payable,
without presentment, demand, protest or further notice of any kind.
5.7. Remedies Cumulative. All rights, remedies and powers of the Bank
hereunder are irrevocable and cumulative, and not alternative or exclusive, and
shall be in addition to all other rights, remedies and powers given hereby or by
any of the other Loan Documents or any laws now existing or hereafter enacted.
6. CONDITIONS PRECEDENT TO LENDING.
-------------------------------
6.1. Conditions to the Making of the Initial Advance under the
Revolving Credit Loan. The obligation of the Bank to make the initial advance
under the Revolving Credit Loan hereunder is subject to the following conditions
precedent:
(a) Revolving Credit Note. The Bank shall have received the
Revolving Credit Note, duly executed by the Borrower on the Closing Date.
(b) Opinion of Borrower's In-House Legal Counsel. The Bank
shall have received a written opinion of in-house legal counsel for the
Borrower, dated the Closing Date, in form and substance reasonably satisfactory
to the Bank.
(c) Evidence of Authorization. The Bank shall have received
copies of all corporate action taken by the Borrower to authorize the Loan
Documents and the borrowings hereunder and under the Revolving Credit Note,
certified as of the Closing
29
<PAGE>
Date and including a certification as to the incumbency and
signature(s) of the person(s) authorized to execute and deliver or furnish such
documents and all related materials and information.
(d) Estoppel Certificate. The Borrower shall deliver to the
Bank a certificate, dated as of the Closing Date, to the effect that (i) no
Event of Default or Potential Default has occurred and is continuing and (ii)
all representations and warranties contained herein and in the Security
Documents are true, accurate and complete in all material respects.
(e) Security Documents. (i) The Bank shall have received the
Security Agreement duly executed by the Borrower.
(ii) The Borrower shall have delivered to the Bank for
filing against the Borrower all necessary and advisable UCC financing
statements, amendments and other appropriate filings (including recording tax
allocation certificates), fully executed and in due and proper form for filing
in all appropriate recording offices situated in such jurisdictions as may be
appropriate, in order to perfect the Bank's first priority lien on and security
interest in all collateral security under any of the Security Documents; and the
Borrower shall have provided for payment of all applicable filing or recording
fees and taxes with respect thereto.
(f) Organizational Documents. The Borrower shall deliver to
the Bank certified copies of the organizational documents of the Borrower and
certificates of good standing for the Borrower from the States of Delaware,
Virginia, California and Ohio.
(g) Consents and Approvals. The Bank shall have received
copies of such consents and approvals as the Borrower may be required to obtain
from any Person in order to enter into this Agreement or any of the Security
Documents and to consummate the transactions contemplated hereby or thereby.
(h) Transaction Expenses. The Borrower shall have paid any
statements for transaction expenses which are payable under Section 8.9 hereof.
(i) Disclosure Letter. The Bank shall have received specific
written disclosure from the Borrower prior to the Closing Date as to any matters
for which disclosure is required under Section 3.6 or 3.12 hereof.
(j) Other Documents. The Bank shall have received such other
documents, certificates and opinions, and evidence of such other matters, as it
may reasonably require.
6.2. Conditions to the Making of Each Advance under the Revolving
Credit Loan. The obligation of the Bank to make each advance under the Revolving
Credit Loan) is subject to the conditions precedent that on the date of the
making of such
30
<PAGE>
advance, (i) the Borrower shall have performed and observed, and shall then be
in compliance with, all of the terms, covenants and conditions of the Loan
Documents, (ii) there shall not have occurred or be existing any Event of
Default, and (iii) the representations and warranties contained herein and in
the Security Documents, as such representations and warranties may from time to
time hereafter be modified or otherwise noticed to the Bank in writing (with
such modifications or other written notifications approved by the Bank), shall
be true, accurate and complete, with the same effect as though such
representations and warranties had been made at the time of such advance; and
each and every request for an advance under the Revolving Credit Loan shall
constitute a confirmation and warranty by the Borrower that this Section 6.2 has
been satisfied in full.
7. COLLATERAL SECURITY.
-------------------
7.1. Security Documents. As collateral security for the Obligations the
Borrower has executed and delivered to the Bank an Amended and Restated Security
Agreement (the "Security Agreement" and, together with the Security Agreement
and any and all additional documents, agreements, instruments and certificates
which may from time to time secure all or any portion of the Revolving Credit
Loan, including without limitation any Pledge and Security Agreement delivered
after the date hereof pursuant to Section 4.22 hereof, the "Security
Documents"), covering and creating a security interest in any and all of its
inventory, goods, accounts, accounts receivable, general intangibles, chattel
paper, instruments and equipment, whether now owned or existing or hereafter
acquired or arising.
7.2. Deposit Balances. As additional security for the payment,
performance and discharge of the Obligations, the Borrower hereby pledges to the
Bank, grants the Bank a security interest in, and gives to the Bank a first
priority lien upon and a right of set-off against, all deposit balances now or
hereafter arising in any of its accounts with the Bank and all property and
securities of every kind and nature which have been or at any time shall be
delivered to the Bank or otherwise come into the Bank's possession, custody or
control for any purpose whatsoever, whether or not for the express purpose of
being used by the Bank as collateral security or for safekeeping or for any
other or different purpose, or which shall be in transit to the Bank or set
apart for or on behalf of the Bank, in any way, by the Borrower or for its
account, or in which the Borrower may have any interest, whether the Bank shall
accept the same for the purpose for which delivered or not, and any and all cash
and non-cash proceeds of said property and securities and every part thereof,
with the right of the Bank, in its discretion, to resort first to any part of
said security without exhausting its rights against any other collateral or
source of payment.
8. MISCELLANEOUS.
-------------
8.1. Exercise of Rights. Any delay on the part of the Bank in
exercising any power, privilege or right under this Agreement shall not operate
as a waiver thereof, and no single or partial exercise of any power, privilege
or right hereunder shall preclude
31
<PAGE>
other or further exercise thereof, or the exercise of any other power, privilege
or right. The waiver by the Bank of any default by the Borrower shall not
constitute a waiver of any subsequent defaults, but shall be restricted to the
default so waived. The failure of the Bank to enforce any of the terms and
provisions hereof, or its failure to declare a default hereunder, shall apply
only in the particular instance, and shall not operate as a continuing waiver.
If any part of this Agreement should be contrary to any law which the Bank might
seek to apply or enforce, or should be otherwise defective, the other provisions
of this Agreement shall not be affected thereby, but shall continue in full
force and effect.
8.2. Payment Due on Banking Day. If any payment or prepayment of
principal or interest on the Revolving Credit Note shall fall due on a day which
is not a Banking Day, interest at the applicable rate shall continue to accrue
on such principal from the stated due date thereof to and including the next
succeeding Banking Day, on which day the same shall be payable.
8.3. Assessments. The Borrower agrees that it will pay all documentary,
stamp, recording and similar taxes which are payable in respect of any of the
Loan Documents, including interest and penalties, in the event any such taxes
are assessed, irrespective of when such assessment is made.
8.4. Survival. All representations and warranties of the Borrower made
herein or in certificates given pursuant hereto shall survive the execution and
delivery of the Loan Documents, and shall continue in full force and effect with
respect to the date as of which they were made as long as the Revolving Credit
Note shall remain outstanding.
8.5. Notices. All notices and other communications provided for herein
or in any of the Security Documents shall be in writing, except as otherwise
specifically provided for hereinabove, and shall be deemed to have been given or
made when served personally or on the first Banking Day following deposit in the
United States mail and addressed, if to the Borrower, to GRC International,
Inc., 1900 Gallows Road, Vienna, Virginia 22182, Attention: Chief Financial
Officer (with a copy to Thomas E. McCabe, Esq., Senior Vice President, Director
of Corporate Development and General Counsel, at the same address), or if to the
Bank, to Two Hopkins Plaza, Baltimore, Maryland 21201, Attention: Mr. Philip G.
Enstice, Senior Vice President (with a copy to Venable, Baetjer and Howard, LLP,
2010 Corporate Ridge, Suite 400, McLean, Virginia 22102, Attn: Joseph C.
Schmelter, Esq.), or at such other address as shall be designated by either
party hereto in a written notice to the other party pursuant to this Section
8.5.
8.6. Counterparts. This Agreement may be executed in any number of
counterparts, and by different parties on different counterparts, all of which
taken together shall constitute one and the same instrument. Any of the parties
hereto may execute this Agreement by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Agreement shall become
32
<PAGE>
effective when each of the parties hereto has executed this Agreement or a
separate counterpart hereof, and delivered the same to the Bank.
8.7. Successors and Assigns; Governing Law; Amendments. This Agreement
shall be binding upon the Borrower and its successors and assigns, and shall
inure to the benefit of the Bank and its successors and assigns, the term "Bank"
as used herein to include any subsequent holder of any Note. The Bank reserves
the right to sell, assign, encumber, transfer or otherwise dispose of all or any
part of its right, title and interest in and to any of the Revolving Credit
Note, the Collateral, the Security Documents and this Agreement, including any
undivided participation therein, all without the consent of or notice to the
Borrower; provided, however, that the Borrower shall continue to recognize the
Bank as the holder of such right, title and interest until it shall have
received written notice from the Bank of disposition. This Agreement and the
rights and duties of the parties hereto shall be construed and determined in
accordance with the internal laws of the State of Maryland, without regard to
principles of conflicts of laws. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and any
prior understandings, commitments and agreements, whether written or oral, with
respect thereto are superseded hereby. No Loan Document may be amended or
modified except by a written instrument signed by the Borrower and the Bank. The
Borrower may not assign its rights or obligations hereunder without the prior
written consent of the Bank.
8.8. Section Headings; Construction. Section headings used in this
Agreement are for convenience of reference only and shall not affect the
construction of this Agreement. When used in this Agreement, the singular of any
word shall include the plural, the plural shall include the singular and the use
of any gender shall include all genders.
8.9. Transaction Expenses. The Borrower shall pay all out-of-pocket
costs and expenses incurred by the Bank in connection with the negotiation,
preparation, execution and delivery of this Agreement, all related documents and
any subsequent amendments hereof or thereof, or in connection with the
consummation of any of the transactions contemplated hereby or thereby,
including the reasonable fees and expenses of Venable, Baetjer and Howard, LLP,
special counsel for the Bank.
8.10. Estoppel Certificates. The Borrower will, upon not less than
fifteen (15) Banking Days' request by the Bank, execute, acknowledge and deliver
to the Bank a statement in writing, certifying (a) that this Agreement is
unmodified and in full force and effect and that the payments required by the
Loan Documents to be paid by the Borrower have been paid, and (b) the then
unpaid balance of the Revolving Credit Loan; and stating whether or not, to the
knowledge of the signer of such certificate, any Event of Default or Potential
Default has occurred and is continuing and, if so, specifying each such default
of which the signer may have knowledge.
33
<PAGE>
8.11. Indemnification. The Borrower shall protect, indemnify and save
harmless the Bank and its officers, employees and agents from and against, any
and all liabilities, suits, actions, claims, demands, losses, expenses and costs
of every kind and nature incurred by, or asserted or imposed against, the Bank
and its officers, agents or employees, or any of them, by reason of any
accident, injury (including death) or damage to any person or property, however
caused (other than if by the willful misconduct of such person), resulting from,
connected with or growing out of any act of commission or omission of the
Borrower or any officer, employee, agent, assignee, contractor or subcontractor
of the Borrower or any use, non-use, possession, occupation, condition,
operation, service, design, construction, acquisition, maintenance or management
of, or on, or in connection with, the Premises, the Collateral, or any part
thereof, or by reason of any suit or proceeding brought by or against the Bank
in any way relating to or arising out of the transactions contemplated by the
Loan Documents, the enforcement of any of the terms thereof or the exercise of
any of the remedies provided for therein, regardless of whether such
liabilities, suits, actions, claims, demands, damages, losses, expenses and
costs are against or are suffered or sustained by the Bank or any of its
officers, agents or employees, or are against legal entities to whom the Bank or
any of its officers, agents or employees may become liable therefor. The
Borrower, if so requested by the Bank, shall undertake to defend, at its sole
cost and expense, any and all suits, actions and proceedings brought against the
Bank or any of its officers, agents or employees in connection with any of the
matters mentioned in this Section 8.11.
8.12. Publicity. Except as may be required to comply with applicable
law, any public notices, advertisements or similar announcements relating to
this Agreement or the Revolving Credit Loan shall be subject to the prior
approval of each of the parties hereto.
34
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
duly executed under seal, intending it to be a sealed instrument, as of the day
and year first above written.
[SEAL]
ATTEST or WITNESS: GRC INTERNATIONAL, INC.
- ---------------------------------- By: (SEAL)
Herbert L. Raiche ------------------------------
Name: Thomas E. McCabe
Assistant Gen. Cnsl. & Ass't Sec. Title: SVP, Dir. Corp. Dev't, GC & Sec.
ATTEST or WITNESS: MERCANTILE-SAFE DEPOSIT
AND TRUST COMPANY
- ---------------------------------- By: (SEAL)
-----------------------------
Name:
------------------------------
Title:
------------------------------
36
<PAGE>
GRC INTERNATIONAL, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Rights Agent
AMENDED AND RESTATED
RIGHTS AGREEMENT
Dated as of May 14, 1999
<PAGE>
AMENDED AND RESTATED
RIGHTS AGREEMENT
----------------
This Agreement, originally dated as of December 2, 1985 and as subsequently
amended as of June 30, 1989, April 1, 1994, June 30, 1995 and May 14, 1999,
between GRC International, Inc., a Delaware corporation ("Company") (formerly
Flow General Inc.), and the Company's transfer agent, American Stock Transfer &
Trust Company, a New York trust company, ("Rights Agent") (as successor in this
Agreement to the Company's previous transfer agent, Philadelphia National Bank).
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company has authorized and declared a
dividend distribution ("Distribution") of one Right for each outstanding share
of Common Stock, $.10 par value, of the Company outstanding on December 6, 1985
and has authorized the issuance of one Right in respect to each share of Common
Stock of the Company issued between December 6, 1985 and the earlier of the
Distribution Date, the Expiration Date or the Final Expiration Date (as such
terms are hereinafter defined), and under certain other circumstances, each
Right representing the right to purchase one share of Common Stock of the
Company upon the terms and subject to the conditions hereinafter set forth; and
WHEREAS, in connection with the Distribution, the Company entered into a Rights
Agreement, originally dated as of December 2, 1985 and as subsequently amended
as of June 30, 1989 and April 1, 1994, with the Rights Agent; and
WHEREAS, the Board of Directors of the Company deems it to be in the best
interests of the Company and its stockholders to amend and restate such Rights
Agreement in its entirety, and to enter into this Agreement on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of securities of the Company constituting a Substantial Block (as such term is
hereinafter defined), but shall not include any employee benefit plan of the
Company.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, ("Exchange Act") as in effect
on June 30, 1995.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
<PAGE>
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing), or upon the exercise
of conversion rights, exchange rights, rights, warrants or options, or
otherwise, provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, (x) securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase, (y)
securities issuable upon exercise of Rights at any time prior to the occurrence
of a Triggering Event, or (z) securities issuable upon exercise of Rights from
and after the occurrence of a Triggering Event which Rights were acquired by
such Person or any of such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to Section 3(a) or Section 22 hereof ("Original
Rights") or pursuant to Section 11(i) hereof in connection with an adjustment
made with respect to any Original Rights; or (B) the right to vote or dispose of
or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security
under this clause (B) if the agreement, arrangement or understanding to vote
such security (1) arises solely from a revocable proxy given in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations of the Exchange Act, and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (B) of subparagraph (ii) of this
paragraph (c)) or disposing of any securities of the Company, provided, however,
that nothing in this paragraph (c) shall cause a Person engaged in business as
an underwriter of securities to be the Beneficial Owner of, or to beneficially
own, any securities acquired through such Person's participation in good faith
in a firm commitment underwriting until the expiration of forty (40) days after
the date of such acquisition.
(d) "Business Day" shall mean any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(f) "Common Stock" when used with reference to the Company shall mean
the Common Stock, $.10 par value, of the Company. "Common Stock" when used with
reference to any Person other than the Company shall mean the capital stock with
the
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greatest voting power of such Person or the equity securities or other equity
interest having power to control or direct the management of such Person.
(g) (deleted)
(h) "Person" shall mean any individual, firm, corporation or other
entity.
(i) "Qualifying Tender Offer" shall have the meaning set forth in
Section 11(a)(ii) hereof.
(j) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(k) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(l) "Substantial Block" shall mean a number of shares of Common Stock
which equals or exceeds twenty-five percent (25%) of the number of shares of
Common Stock then outstanding.
(m) "Triggering Event" shall mean any event described in Section
11(a)(ii) (a "Section 11(a)(ii) Event"), or in Section 13(a)(x), (y) or (z) (a
"Section 13 Event"), hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights
Agent to act as agent for the Company and the holders of the Rights (who, in
accordance with Section 3 hereof shall, prior to the Distribution Date, also be
the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may,
from time to time, appoint such Co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Rights Certificate. (a) Until the earlier of (i) the Close
of Business on the tenth Business Day after the Shares Acquisition Date or (ii)
the Close of Business on the tenth Business Day (or such later date as the Board
shall determine) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon
consummation thereof, such Person would be the beneficial owner of 25% or more
of the shares of Common Stock then outstanding (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of paragraph (b) of this
Section 3) by the certificates for the Common Stock registered in the names of
the holders of the Common Stock (which certificates for the Common Stock shall
be deemed also to be Right Certificates) and not by separate Right
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Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of the Common Stock. As soon
as practicable after the Distribution Date, the Rights Agent will send, by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit A hereto, evidencing one Right for each share
of Common Stock so held. As of the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) On December 6, 1985, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to purchase Common Stock, in
substantially the form attached as Exhibit B ("Summary of Rights"), by
first-class, postage prepaid mail, to each record holder of the Common Stock as
of the Close of Business on December 6, 1985, at the address of such holder
shown on the records of the Company. With respect to certificates for the Common
Stock outstanding as of December 6, 1985, until the Distribution Date, the
Rights will be evidenced by such certificates for the Common Stock registered in
the names of the holders of the Common Stock with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any of the certificates
for the Common Stock outstanding on December 6, 1985, even without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate.
(c) Certificates for the shares of Common Stock issued after December
6, 1985, but prior to the earlier of the Distribution Date, the Expiration Date
or the Final Expiration Date (as such terms are defined in Section 7) shall, as
soon as practicable after such date, have impressed on, printed on, written on
or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof, to
certain Rights, as set forth in an Amended and Restated Rights
Agreement between GRC International, Inc. and American Stock Transfer &
Trust Company ("Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of GRC International, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. GRC International, Inc. will mail to the holder of
this certificate a copy of the Rights Agreement, without charge, within
five days after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or any
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement), whether currently held by, or on behalf of, such Person or
by any subsequent holder, may become null and void.
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With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any of such certificates shall also constitute the
transfer of the Rights associated with the shares of Common Stock represented by
such certificate.
Section 4. Form of Right Certificates.
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(a) The Right Certificates (and the forms of election to purchase
shares and of assignment to be printed on the reverse thereof) shall be
substantially the same as Exhibit A hereto, and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon, as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may, from time to
time, be listed or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Right Certificates, when issued, shall be dated as of
December 6, 1985, and on their face shall entitle the holders thereof to
purchase such number of shares of Common Stock as shall be set forth therein at
the price per share set forth therein ("Purchase Price"), but the number and
type of securities purchasable upon the exercise of each Right and the Purchase
Price thereof, shall be subject to adjustments, as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and void in the circumstances specified in Section
7(e) of such Agreement.
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Section 5. Countersignature and Registration. The Right Certificates shall be
executed on behalf of the Company in the manner provided in the Bylaws of the
Company for Common Stock certificates. The Right Certificates shall be
countersigned by the Rights Agent, manually or by facsimile signature, and shall
not be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent, issued and delivered with the same force
and effect as though the Person who signed such Right Certificates had not
ceased to be such officer of the Company; and any Right Certificate may be
signed on behalf of the Company by any Person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of the execution of this
Rights Agreement any such Person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be kept,
at one of its offices, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the
provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time
after the Close of Business on the Distribution Date, and at or prior to the
Close of Business on the earlier of the Expiration Date or the Final Expiration
Date, any Right Certificate or Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of shares of Common
Stock (or, following a Triggering Event, other securities, cash or other assets,
as the case may be) as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any right Certificate shall make such
request in writing, delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Neither the Rights Agent
nor the Company shall be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Right Certificates until the registered
holder shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Right Certificates, and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof, as the Company
shall reasonably request. Thereupon the Rights Agent shall countersign and
deliver to the person entitled thereto, a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
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Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction of indemnity or security
reasonably satisfactory to them, and reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
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(a) Subject to the provisions of Section 7(e) hereof, the registered
holder of any Right Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein including, without limitation, the
restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and
Section 23(a) hereof), in whole or in part, at any time after the Distribution
Date, upon surrender of the Right Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly executed, to the
Rights Agent, together with payment of the Purchase Price for each share of
Common Stock (or other securities, cash or other assets, as the case may be) as
to which the Rights are exercised, at or prior to the Close of Business on the
earlier of (i) August 31, 2000 ("Final Expiration Date"), or (ii) the date on
which the Rights are redeemed, as provided in Section 23 (such earlier date
being herein referred to as the "Expiration Date").
(b) The Purchase Price for each share of the Common Stock pursuant to
the exercise of a Right shall be $100, shall be subject to adjustment, from time
to time, as provided in Sections 11 and 13 hereof, and shall be payable in
lawful money of the United States of America in accordance with paragraph (c)
below.
(c) Upon receipt of the Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the shares (or other
securities, cash or other assets, as the case may be) to be purchased and an
amount equal to any applicable transfer tax in cash, or by certified check or
bank draft payable to the order of the Company, the Rights Agent shall (subject
to Section 20(k) hereof) thereupon promptly (i) requisition from any transfer
agent of the Common Stock of the Company certificates for the number of shares
of Common Stock to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 14, (iii) promptly after receipt
of such certificates, cause the same to be delivered to, or upon the order of,
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder, and (iv) when appropriate, after
receipt, promptly deliver such cash to, or upon the order of, the registered
holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to
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<PAGE>
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall become null and void without any further action and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof, except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof, to the Company.
Section 9. Reservation and Availability of Shares of Common Stock.
- ------------------------------------------------------------------
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<PAGE>
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Common Stock or
its authorized and issued shares of Common Stock held in its treasury, the
number of shares of Common Stock that will be sufficient to permit the exercise
in full of all outstanding Rights.
(b) So long as the Common Stock issuable upon the exercise of Rights
may be listed on any national securities exchange, the Company shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such exchange
upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with this Agreement, a
registration statement under the Securities Act of 1933 ("Act"), with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing, and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Act) until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of the
Rights. The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days after
the date set forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. In addition, if the Company shall
determine that a registration statement is required following the Distribution
Date, the Company may temporarily suspend the exercisability of the Rights until
such time as a registration statement has been declared effective.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction, if the requisite qualification in
such jurisdiction shall not have been obtained, the exercise thereof shall not
be permitted under applicable law or a registration statement shall not have
been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to insure that all shares of Common Stock delivered upon
exercise of Rights shall, at the time of delivery of the certificates of such
shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay, when due
and payable, any and all federal and state transfer taxes and charges which may
be payable in respect to the issuance or delivery of the Right Certificates or
of any shares
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<PAGE>
of Common Stock upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect to any transfer
involved in the transfer or delivery of Right Certificates or the issuance or
delivery of certificates for Common Stock in a name other than that of the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates for shares of Common Stock upon
the exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's satisfaction that no such tax
is due.
Section 10. Common Stock Record Date. Each Person in whose name any certificate
for Common Stock is issued upon the exercise of Rights shall, for all purposes,
be deemed to have become the holder of record of the shares of Common Stock
represented thereby on, and such certificate shall be dated the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
Common Stock transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated the next succeeding Business Day on which the Common Stock
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.
The Purchase Price, the number of shares covered by each Right and the number of
Rights outstanding are subject to adjustment, from time to time, as provided in
this Section 11.
(a) (i) In the event the Company shall, at any time after the date of
this Agreement, (A) declare a dividend on the Common Stock payable in shares of
Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine
the outstanding shares of Common Stock into a smaller number of shares, or (D)
issue any shares of its capital stock in a reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and in Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Common Stock transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such
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<PAGE>
dividend, subdivision, combination or reclassification provided, however, that
if the record date for any such dividend, subdivision, combination or
reclassification shall occur prior to the Distribution Date, the Company shall
make an appropriate adjustment to the Purchase Price (taking into account any
additional Rights which may be issued as a result of such dividend, subdivision,
combination or reclassification lieu of adjusting (as described above) the
number of shares of Common Stock (or other capital stock, as the case may be)
issuable upon exercise of the Rights. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section 11(a)(ii)
hereof.
(ii) In the event any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan), alone
or together with its Affiliates and Associates, shall, at any time after the
date of the Distribution, become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding, unless the event
causing the 25% threshold to be crossed is a transaction set forth in Section
13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a
tender offer or an exchange offer for all outstanding shares of Common Stock at
a price and on terms determined by at least a majority of the members of the
Board of Directors who are not officers of the Company and who are not
representatives, nominees, Affiliates or Associates of an Acquiring Person,
after receiving advice from one or more investment banking firms, to be (a) at a
price which is fair to stockholders (taking into account all factors which such
members of the Board deem relevant including, without limitation, prices which
could reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value), and (b) otherwise in the best
interests of the Company and its stockholders (such tender offer, a "Qualifying
Tender Offer"), then proper provision shall be made so that each holder of a
Right, except as provided below and in Section 7(e), shall thereafter have a
right to receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of shares of Common
Stock of the Company as shall equal the result obtained by (x) multiplying the
then-current Purchase Price by the then number of shares of Common Stock for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and (y) dividing that product (which, following such
first occurrence, shall thereafter be referred to as the "Purchase Price" for
each Right and for all purposes of this Agreement) by 50% of the current market
price (determined pursuant to Section 11(d) hereof) per share of Common Stock on
the date of such first occurrence (such number of shares, the "Adjustment
Shares").
(iii) In the event that the number of shares of Common Stock
which are authorized by the Company's certificate of incorporation, but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section 11(a), the
Company shall (a) determine the excess of (1) the value of the Adjustment Shares
issuable upon the exercise of a Right ("Current
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Value") over (2) the Purchase Price, and (B) with respect to each Right (subject
to subparagraph (iii) of this Section 11(a)), make adequate provision to
substitute for the Adjustment Shares, upon the exercise of a Right and payment
of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase
Price, (3) Common Stock or other equity securities of the Company (including,
without limitation, shares or units of shares, or preferred stock which the
Board of Directors has deemed to have essentially the same value or economic
rights as shares of Common Stock (such shares of preferred stock being referred
to as "Common Stock Equivalents")), (4) debt securities of the Company, (5)
other assets, or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value (less the amount of any reduction in the Purchase
Price), where such aggregate value has been determined by the Board based upon
the advice of a nationally recognized investment banking firm selected by the
Board; provided, however, that if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Section 11(a)(ii) Event and
(y) the date on which the Company's right of redemption pursuant to Section
23(a) expires (the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of the
Purchase Price, shares of Common Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to the
Spread. For purposes of the preceding sentence, the term "Spread" shall mean the
excess of (i) the Current Value over (ii) the Purchase Price. If the Board
determines in good faith that it is likely that sufficient additional shares of
Common Stock could be authorized for issuance upon exercise in full of the
Rights, the thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares (such thirty (30) day period, as it may
be extended, is herein called the "Substitution Period"). To the extent that
action is to be taken pursuant to the first and/or third sentences of this
Section 11(a)(iv), the Company (1) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights, and
(2) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek such stockholder approval for such
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of each Adjustment Share shall be the current market price per share of
the Common Stock on the Section 11(a)(ii) Trigger Date, and the per share or per
unit value of any Common Stock Equivalent shall be deemed to equal the current
market price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of the Common Stock entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Common Stock
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(or securities convertible into Common Stock) at a price per share of Common
Stock (or having a conversion price per share of Common Stock, if a security
convertible into the Common Stock) less than the current market price per share
of Common Stock (as defined in Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so to
be offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price and of
which the denominator shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Shares of Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than a
regular periodic cash dividend out of earnings or retained earnings or a
dividend payable in shares of Common Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b)), the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, of which
the numerator shall be the current market price per share of Common Stock (as
defined in Section 11(d)) on such record date, less the fair market value (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one share of the Common
Stock and of which the denominator shall be such current market price per share
of the Common Stock. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Purchase price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current market
price" per share of the Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of the Common Stock for the 30
consecutive Trading
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Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current market price per share of
the Common Stock is determined during a period following the announcement by the
issuer of the Common Stock of a dividend or distribution on the Common Stock
payable in shares of Common Stock, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, then, and in
each such case, the current market price shall be appropriately adjusted to
reflect the current market price per common share equivalent. The closing price
for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or such other system then in use, or, if
on any such date the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market marker making a market in the Common Stock selected by the Board of
Directors of the Company. If on any such date no market maker is making a market
in the Common Stock, the fair value of such shares on such date as determined in
good faith by the Board of Directors of the Company shall be used. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Business Day. If the Common Stock
is not publicly held or not so listed or traded, "current market price" per
share shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a share as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which mandates such adjustment, or (ii)
the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) hereunder, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Company other than
shares of Common
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Stock, thereafter the number of such other shares so receivable upon exercise of
any Right shall be subject to adjustment from time to time, in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
shares contained in Section 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and
(m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to
the shares of Common Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Common Stock
purchasable, from time to time, hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculation made in Section 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of shares (calculated to
the nearest ten-thousandth) obtained by (i) multiplying (x) the number of shares
covered by a Right immediately prior to this adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price, and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of shares of Common Stock purchasable upon the exercise
of a Right. Each of the Rights outstanding after such adjustment of the number
of Rights shall be exercisable for the number of shares of Common Stock for
which a Right was exercisable immediately prior to such adjustment. Each Right
held of record prior to such adjustment of the number of Rights shall become
that number of Rights (calculated to the nearest ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of
the Purchase Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Right Certificates have been issued, shall be at least
10 days later than the date of the public announcement. If Right Certificates
have been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14, the additional Rights to which
such holders shall be entitled as a result of such adjustment, or, at the option
of the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued,
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executed and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Purchase Price) and shall be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustments or change in the Purchase Price or
the number of shares of Common Stock issuable upon the exercise of the Rights,
the Right Certificates theretofore and thereafter issued may continue to express
the Purchase Price per share and the number of shares which were expressed in
the initial Right Certificates issued thereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Common Stock
issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Purchase Price.
(l) In any case in which the Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the shares of Common Stock and other capital stock or securities of the Company,
if any, issuable upon such exercise over and above the shares of Common Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as to the
extent that, in its sole discretion, it shall determine to be advisable in order
that any consolidation or subdivision of the shares of Common Stock, issuance
wholly for cash of any shares of Common Stock at less than the current market
price, issuance wholly for cash of shares of Common Stock or securities which by
their terms are convertible into or exchangeable for shares of Common Stock,
stock dividends or issuance of rights, options or warrants referred to
hereinabove in this Section 11, hereafter made by the Company to holders of its
Common Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
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Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution Date,
it will not, except as permitted by Section 23 or Section 26 hereof, take (or
permit any Subsidiary to take) any action if at the time such action is taken it
is reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever
an adjustment is made, as provided in Section 11 and 13, the Company shall (a)
promptly prepare a certificate setting forth such adjustment, and a brief
statement of the facts accounting for such adjustment, (b) promptly file with
the Rights Agent and with each transfer agent for the Common Stock a copy of
such certificate, and (c) mail a brief summary thereof, to each holder of a
Right Certificate in accordance with Section 25.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. (a) In the event that, following the Shares Acquisition Date, directly or
indirectly, (x) the Company shall consolidate with, or merge with and into, any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), shall consolidate with the Company, or merge with and into the
Company, and the Company shall be the continuing or surviving corporation of
such consolidation or merger and, in connection with such consolidation or
merger, all or part of the Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property, or
(z) the Company shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating more than 50% of the assets or earning power
of the Company and its subsidiaries (taken as a whole) to any Person (other than
the Company or any Subsidiary of the Company in one or more transactions each of
which complies with Section 11(o) hereof), then, and in each such case (except
as may be contemplated by Section 13(d) hereof), proper provision shall be made
so that (i) each holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have the right to receive, upon the exercise thereof at the
then-current Purchase Price in accordance with the terms of this agreement, such
number of validly authorized and issued, fully paid, non-assessable and freely
tradable shares of Common Stock of the Principal Party not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall be equal
to the result obtained by (1) multiplying the then-
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current Purchase Price by the number of shares of Common Stock for which a Right
is then exercisable and dividing that product by (2) 50% of the current market
price per share of common Stock of such other Person (determined pursuant to
Section 11(d)) on the date of consummation of such consolidation, merger, sale
or transfer; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of the Company pursuant to this Agreement; (iii) the term
"Company" shall thereafter be deemed to refer to such Principal Party; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with such consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation to
the shares of its Common Stock thereafter deliverable upon the exercise of the
Rights and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted in
such merger or consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions; provided, however, that in any such case, (1) if
the Common Stock of such Person is not at such time and has not been
continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, "Principal Party" shall refer to such other Person; and (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A)
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become effective as soon as practicable after such filing, and (B) remain
effective (with a prospectus at all times meeting the requirements of the Act)
until the Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10 under
the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary, Section
13 shall not be applicable to a transaction described in subparagraphs (x) and
(y) of Section 13(a) if (i) such transaction is consummated with a Person or
Persons who acquired shares of Common Stock pursuant to a Qualifying Tender
Offer (or a wholly owned Subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is not less than the
price per share of Common Stock paid to all holders of shares of Common Stock
whose shares were purchased pursuant to such Qualifying Tender Offer, and (iii)
the form of consideration being offered to the remaining holders of shares of
Common Stock pursuant to such transaction is the same as the form of
consideration paid pursuant to such Qualifying Tender Offer. Upon consummation
of any such transaction contemplated by this Section 13(d), all Rights hereunder
shall expire.
Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not
be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, there shall
be paid to the registered holders of the Right Certificates with regard to which
such fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For the purposes
of this Section 14(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable. The closing
price for any day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a
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market in the Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the Rights the fair
value of the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares upon
exercise of the Rights or to distribute certificates which evidence fractional
shares. In lieu of fractional shares, the Company may pay to the registered
holders of Right Certificates at the time such Right Certificates are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of a share of Common Stock. For purposes of this Section 14(b), the
current market value of a share of Common Stock shall be the closing price of a
shares of Common Stock (as determined pursuant to the second sentence of Section
11(d)) for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Rights expressly
waive his right to receive any fractional Rights or any fractional shares upon
exercise of a Right.
Section 15. Rights of Action. All rights of action in respect to this Agreement
are vested in the respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the Common Stock); and
any registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Stock), without the consent of the Rights Agent or of the
holder of any other Right Certificate (or, prior to the Distribution Date, of
the Common Stock), may, in his own behalf and for his own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect to, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right by accepting the
same consents and agrees with the Company and the Rights Agent and with every
other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal officer of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer;
(c) subject to Section 6 and Section 7(f), the Company and the Rights
Agent may deem and treat the Person in whose name the Right Certificate (or,
prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right Certificate
or the associated Common
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Stock certificate made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights Agent, subject
to Section 7(e), shall be affected by any notice to the contrary;
(d) notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights agent shall have any liability to any holder of a
Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of Common Stock or any other securities of
the Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 24), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises. The Rights
Agent shall be protected and shall incur no liability for or in respect to any
action taken, suffered or omitted by it in connection with its administration of
this Agreement in reliance upon any Right Certificate or certificate for the
Common Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged
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or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any corporation succeeding to the corporate trust business
of the Rights Agent or any successor Right Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at such
time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
22
<PAGE>
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
to the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect to the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
13 or responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued pursuant to this
Agreement or any Right Certificate or as to whether any shares of Common Stock
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the President, the Secretary or the Treasurer
of the Company, unless such officer shall be deemed to be an Acquiring Person
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents for or any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
23
<PAGE>
(j) In the event that any Person becomes an Acquiring Person, the
Company shall notify the Rights Agent of such event and of the identity of such
Person. The Rights Agent thereupon shall undertake a reasonable investigation to
ascertain which shares are held beneficially by such Acquiring Person, including
shares held by nominees of such Acquiring Person. If the Rights Agent undertakes
such reasonable investigation on a continuing basis after notification by the
Company as provided herein, the Rights Agent shall not be liable for its failure
in good faith to insert the legend provided for in Section 11(a)(iii) of this
Agreement into Right Certificates owned by or transferred to such Acquiring
Person or its nominees.
(k) If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
days' notice in writing mailed to the Company and to each transfer agent of the
Common Stock by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Stock by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of any state thereof, which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $10 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21,
24
<PAGE>
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company, may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price per share and the number or kind of class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. in addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Right Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Right Certificate shall be issued if, and to the extend that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. Redemption.
- -----------------------
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (x) the Close of Business on the tenth day
following the Shares Acquisition Date, or (y) the Close of Business on the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights
at a redemption price of $.05 per Right appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Notwithstanding anything contained in this Agreement to the contrary,
the Rights shall not be exercisable after the first occurrence of a Section
11(a)(ii) Event until such time as the Company's right of redemption hereunder
has expired. The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock (based on the "current market price", as defined in
Section 11(d) hereof, of the Common Stock at the time of redemption) or any
other form of consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within 10 days after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the holders of the then outstanding Rights by mailing such notice
to all such holders at their last address as they appear upon the
25
<PAGE>
registry books of the Rights Agent, or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Stock. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that specifically set
forth in this Section 23, and other than in connection with the repurchase of
Common Stock prior to the Distribution Date.
Section 24. Notice of Certain Events. In case the Company shall propose (a) to
pay any dividend payable in stock of any class to the holders of its Common
Stock or to make any other distribution to the holders of its Common Stock
(other than a regular periodic cash dividend out of earnings or retained
earnings), (b) to offer to the holders of its Common Stock rights or warrants to
subscribe for or to purchase any additional shares of Common Stock or shares of
stock of any class or any other securities, rights or options, (c) to effect any
reclassification of its Common Stock (other than a reclassification involving
only the subdivision of outstanding shares of Common Stock, (d) to effect any
consolidation or merger into or with, or to effect any sale or other transfer
(or to permit one or more of its subsidiaries to effect any sale or other
transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Company and its subsidiaries (taken as a whole) to, any
other Person (other than the Company and/or any of its Subsidiaries in one or
more transactions each of which complies with Section 11(o) hereof), or (e) to
effect the liquidation, dissolution or winding up of the Company, then, in each
such case, the Company shall give to each holder of a Right, in accordance with
Section 25, a notice of such proposed action, which shall specify the record
date for the purposes of such stock dividend, distribution of rights or Rights,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Stock, if any such date is
to be fixed, and such notice shall be so given in the case of any action covered
by clause (a) or (b) above at least twenty (20) days prior to the record date
for determining holders of the Common Stock for purposes of such action, and in
the case of any such other action, at least twenty (20) days prior to the date
of the taking of such proposed action or the date of participation therein by
the holders of the Common Stock, whichever shall be the earlier.
In case any of the events set forth in Section 11(a)(ii) of this Agreement shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Right, in accordance with Section 25, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii).
Section 25. Notices. Notices or demands authorized by this Agreement to be given
or made by the Rights Agent or by the holder of any Right Certificate to or on
the Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address it filed in writing with the
Rights Agent) as follows:
26
<PAGE>
GRC International, Inc.
Plaza 1900
1900 Gallows Road
Vienna, Virginia 22182
Attention: Corporate Secretary
with a copy to the General Counsel at the same address. Subject to the
provisions of Section 21, any notice or demand authorized by this Agreement to
be given or made by the Company or by the holder of any Right Certificate to or
on the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
American Stock Transfer & Trust Company
99 Wall Street
New York, New York 10005
Notices of demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 26. Supplements and Amendments. The Company and the Rights Agent may,
from time to time, supplement or amend this Agreement without the approval of
any holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, to extend the period of redemption provided
for in Section 23 of this Agreement, or to make any other provisions in regard
to matters or questions arising hereunder which the Company and the Rights Agent
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Right Certificates.
Section 27. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Rights Agent shall bind an inure to the
benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors, etc. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the
Exchange Act. The Board of Directors of the Company shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend this Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good
27
<PAGE>
faith, shall (x) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights and all other parties, and (y) not subject the
Board to any liability to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates.
Section 30. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 31. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 32. Descriptive Headings. Descriptive headings of the several Sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
Section 33. Severability. If any portion or provision of this Agreement shall be
held void, illegal, unenforceable or in conflict with any applicable law or
regulation then in effect, the validity or enforceability of the remaining
portions or provisions shall not be affected thereby; provided, however, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held to be invalid, void or unenforceable
and the Board of Directors of the Company determines in its good faith judgment
that severing the invalid language form this Agreement would adversely affect
the purpose or effect of this Agreement, the right of redemption set forth in
Section 23 hereof shall be reinstated and shall not expire until the Close of
Business on the tenth day following the date of such determination by the Board
of Directors; and provided, further, that if any provision of this Agreement
requiring that a determination be made by independent directors is held to be
invalid, void or unenforceable, then this Agreement shall be construed as
providing that such determination shall be made by the entire Board of
Directors.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: GRC INTERNATIONAL, INC.
By: By:
---------------------------------- -------------------------------------
Thomas E. McCabe Gary L. Denman
SVP, Dir. Corp Dev't, Gen. Cnsl & Sec. President and Chief Executive Officer
Attest: AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: By:
--------------------------------- ---------------------------------
Printed Name: Printed Name:
---------------------- ------------------------
Title: Title:
---------------------------- ------------------------------
29
<PAGE>
Exhibit A
---------
[Form of Right Certificate]
Certificate No. R- Rights
--------
NOT EXERCISABLE AFTER AUGUST 31, 2000 OR EARLIER IF NOTICE OF REDEMPTION IS
GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$.05 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS CERTIFICATE WERE ISSUED TO
A PERSON WHO WAS AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON. THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT.][1]
Right Certificate
This certifies that -------------------, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the
Amended and Restated Rights Agreement dated as of May 14, 1999 ("Rights
Agreement") between GRC International, Inc., a Delaware corporation ("Company"),
and American Stock Transfer & Trust Company, a New York trust company ("Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M. (New
York City time) on August 31, 2000 at the principal office of the Rights Agent,
or its successors as Rights Agent, one fully paid nonassessable share of Common
Stock, $.10 par value ("Common Stock"), of the Company, at a purchase price of
$100 per share ("Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed. The number of
Rights evidenced by this Right Certificate (and the number of shares which may
be purchase upon exercise thereof) set forth above, are the number as of
December 6, 1985, based on the shares of Common Stock of the Company as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of shares of Common Stock or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the
Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii)
under certain circumstances specified in the Rights
- ------------------------------------
[1] The portion of the legend in brackets shall be inserted only if applicable.
<PAGE>
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
This Right Certificate is subject to all of the terms, provisions and conditions
of the Rights Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent.
This Right Certificate, with or without other Right Certificates, upon surrender
at the principal office or offices of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificate of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Common Stock as the Rights evidenced by the Right
Certificate or Right Certificate surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by this
Certificate may be redeemed by the Company at its option at a redemption price
of $.05 per Right at any time prior to the earlier of the close of business on
(i) the tenth day following the Shares Acquisition Date (as such time period may
be extended pursuant to the Rights Agreement), and (ii) the Final Expiration
Date. In addition, the Rights may be exchanged, in whole or in part, for shares
of the Common Stock, or shares of preferred stock of the Company having
essentially the same value or economic rights as such shares. Immediately upon
the action of the Board of Directors of the Company authorizing any such
exchange, and without any further action or any notice, the Rights (other than
Rights which are not subject to such exchange) will terminate and the Rights
will only enable holders to receive the shares issuable upon such exchange.
No fractional shares of Common Stock will be issued upon the exercise of any
Right or Rights evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of Common Stock or of any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or, to receive notice of meetings or
other actions affecting shareholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the
2
<PAGE>
Right or Rights evidenced by this Right Certificate shall have been exercised as
provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal. Dated as of .
-------------------
Attest: GRC INTERNATIONAL, INC.
By: By:
------------------------------------ -------------------------------------
Thomas E. McCabe Gary L. Denman
SVP, Dir. Corp Dev't, Gen. Cnsl & Sec. President and Chief Executive Officer
Countersigned:
Attest: AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: By:
----------------------------------- -------------------------------------
Printed Name: Printed Name:
------------------------ ---------------------------
Title: Title:
------------------------------ ---------------------------------
3
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(to be executed by the registered holder if such
holder desires to transfer the Right Certificates.)
FOR VALUE RECEIVED ----------------------- sells, assigns and transfers
unto -------------------------------------------.
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint as Attorney, to transfer the
within Right Certificate on the books of the within-named Company, with full
power of substitution.
Date:
---------------------------------
- --------------------------------------
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associates of any such Acquiring Person (as such terms are defined
in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Date:
-------------------------------
- ------------------------------------
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Assignment must correspond to the name as written
upon the face of this Right Certificate in every particular, without alteration
on enlargement or any change whatsoever.
4
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise the Right
Certificate.)
To GRC International, Inc.
The undersigned hereby irrevocably elects to exercise ------- Rights represented
by this Right Certificate to purchase the shares of Common Stock issuable upon
the exercise of such Rights and requests that certifies for such shares be
issued in the name of: Please insert social security or other identifying number
- -------------------------------------
(Please print name and address)
- -------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to: Please insert social
security or other identifying number
- -------------------------------------
(Please print name and address)
- -------------------------------------
Dated:
-------------------------------
- -------------------------------------
Signature
(Signature must conform in all respects to name of holder as specified on the
face of this Right Certificate)
Signature Guaranteed:
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated:
--------------------------------
- --------------------------------------
Signature
Signature Guaranteed:
<PAGE>
Exhibit B
---------
SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK
On November 25, 1985, the Board of Directors ("Board") of GRC International,
Inc. ("Company") declared a dividend distribution of one Right for each share of
Common Stock, $.10 par value, of the Company ("Common Stock") which was then
outstanding or would later be issued. The distribution was originally payable to
the holders of record of the Common Stock on December 6, 1985. As of June 30,
1989, April 1, 1994, June 30, 1995 and May 14, 1999, the Rights were amended by
the Board. As amended, each Right entitles the registered holder to purchase
from the Company one share of Common Stock at a price of $100 per share
("Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in an Amended and Restated Rights Agreement ("Rights
Agreement") between the Company and American Stock Transfer & Trust Company, as
Rights Agent ("Rights Agent").
Until the earlier to occur of (i) ten business days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") acquired, or obtained the right to acquire, beneficial
ownership of twenty-five percent (25%) or more of the outstanding Common Stock,
or (ii) ten business days following the commencement or announcement of an
intention to make a tender offer or exchange offer for twenty-five percent (25%)
or more of such outstanding Common Stock (the earlier of such dates being called
the "Distribution Date"), the Rights will be evidenced, with respect to any of
the Common Stock certificates outstanding as of December 6, 1985, by such Common
Stock certificate, with the legend described in Section 3(c) of the Rights
Agreement printed on the reverse of such Common Stock certificate. The Rights
Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with the Common Stock. Until the Distribution Date (or
earlier redemption or expiration of the Rights), new Common Stock certificates
issued after December 6, 1985 upon transfer of new issuance of the Common Stock
will contain a notation incorporating the Rights Agreement by reference. Until
the Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any Common Stock certificates outstanding as of
December 6, 1985, even without the legend described in Section 3(c) of the
Rights Agreement, will also constitute the transfer of the Rights associates
with the Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificate evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common Stock
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on August 31, 2000, unless earlier redeemed by the Company as described
below.
The Purchase Price payable, and the number of shares of the Common Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment, from time to time, to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of the
Common Stock, (ii) upon the grant to holders of the Common Stock of certain
rights or warrants to subscribe for Common Stock or convertible securities at
less than the current market price of the Common
<PAGE>
Stock, or (iii) upon the distribution to holders of the Common Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
out of earnings or retained earnings or dividends payable in the Common Stock)
or of subscription rights or warrants (other than those referred to above).
In the event that, at any time following the Distribution, a person becomes the
beneficial owner of twenty-five percent (25%) or more of the then outstanding
shares of Common Stock (except pursuant to an offer for all outstanding shares
of Common Stock which the independent directors determine to be fair to and
otherwise in the best interests of the Company and its shareholders), each
holder of a Right will thereafter have the right to receive, upon exercise,
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the exercise price of the
Right. Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void. However, Rights are not exercisable
following the occurrence of the events set forth above until such time as the
Rights are no longer redeemable by the Company as set forth below.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its assets or earning power are sold,
proper provision shall be made so that each holder of a Right (except Rights
which have been previously voided as set forth above) shall thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction would have a market value of two times the
exercise price of the Right.
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional shares will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Common Stock on
the last trading date prior to the date of exercise.
At any time prior to the earlier to occur of (i) the tenth business day
following the public announcement that a person or group of affiliated or
associated persons has acquired beneficial ownership of twenty-five percent
(25%) or more of the outstanding Common Stock or (ii) August 31, 2000, the
Company may redeem the Rights in whole, but not in part, at a price of $.05 per
Right, payable in cash, Common Stock or other consideration deemed appropriate
by the Board of Directors ("Redemption Price"). Immediately upon the action of
the Board of Directors of the Company electing to redeem the Rights, the Company
shall make announcements thereof, and upon such election, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of the Company, including, without limitation, the right to vote
or to receive dividends.
2
<PAGE>
A copy of the Rights Agreement will be filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form 8-A. A copy of the
Rights Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby incorporated
herein by reference.
3
<PAGE>
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, will assist the Company with certain
classified Customers, which shall not be identified due to the unique
classifications, and additional work as may be assigned .
2. Term. This Agreement shall be effective November 6, 1998, and will continue
until November 5, 2001, but either party may terminate same by giving the
other party written notice at least thirty (30) days prior to the effective
date of such termination. "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 seven (7) 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 $403,200.00.
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.
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
- --------------------------------------- By:
Independent Contractor's Signature/Date ------------------------------
Signature/Date
- ---------------------------------------
Independent Contractor's SSN/FEIN Title: Sr. Contracts Administrator
---------------------------
Charge Number:
--------------------
FISCAL 1999 CHAIRMAN'S AGREEMENT
--------------------------------
This AGREEMENT is made and entered into as of July 1, 1998, at Vienna, Virginia,
by and between Joseph R. Wright, Jr. ("Chairman"), and GRC International, Inc.,
a Delaware corporation ("Company").
In consideration of the mutual premises, promises, covenants, and agreements
herein contained, the parties hereby agree as follows:
1. The Position of Chairman
------------------------
This agreement supersedes and replaces all previous Chairman's Agreements
between the Company and the Chairman. The Chairman agrees to serve as Chairman
until such time as he chooses to resign or the Board of Directors elects a new
Chairman. The Chairman's duties shall be as described in the Company's Bylaws.
The Chairman will continue to be a member of the Board of Directors, and will
continue to be an independent outside director, in recognition of his being an
independent contractor and not an employee of the Company.
2. Compensation; Independent Contractor Status
-------------------------------------------
(a) The Company shall pay the Chairman a Chairman's fee of $25,000 per fiscal
quarter of the Company (pro-rated for partial quarters), payable after the end
of each quarter. If the Chairman does not desire to receive his Chairman's fee
in the form of cash, he may elect from time to time to receive it in other forms
under the various plans available to the Company's outside directors. The
Chairman shall not receive the normal Board retainer or any meeting fees, but
shall continue to receive all other benefits received by the Company's outside
directors, including but not limited to (i) life insurance, and (ii) benefits
provided under the Company's Directors Retirement Plan. The Chairman shall also
be fully reimbursed for all of his Company-related expenses.
(b) For fiscal 1999 only, in order to further incentivize the Chairman along
lines that benefit shareholders, the Chairman will also be paid a bonus, which
will only be paid to the extent the Company's present business (without
acquisitions) exceeds the budgeted EBT of $6,134,000. A 10% increase in EBT (to
$6,747,400) renders a bonus of $30,000, and a 20% increase in EBT (to
$7,360,800) renders a bonus of $100,000. Intervening percentage increases are
pro-rated. The bonus will be paid at the end of the year at the same time
executive bonuses are paid, and will be paid in the form of stock or options
under the Directors Fee Replacement Plan.
<PAGE>
(c) The parties agree that the Chairman shall occupy the status of an
independent contractor, and thus shall be responsible for all tax payments as to
his compensation hereunder. Inasmuch as the Chairman is not an employee of the
Company, the Company shall not withhold any income or employment taxes from his
compensation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
CHAIRMAN: GRC INTERNATIONAL, INC.
- ------------------------------ By:
Joseph R. Wright, Jr. -----------------------------------
Gary L. Denman
President & Chief Executive Officer
2
<PAGE>
FISCAL 2000 CHAIRMAN'S AGREEMENT
--------------------------------
This AGREEMENT is made and entered into as of July 1, 1999, at Vienna, Virginia,
by and between Joseph R. Wright, Jr. ("Chairman"), and GRC International, Inc.,
a Delaware corporation ("Company").
In consideration of the mutual premises, promises, covenants, and agreements
herein contained, the parties hereby agree as follows:
1. The Position of Chairman
------------------------
This agreement supersedes and replaces all previous Chairman's Agreements
between the Company and the Chairman. The Chairman agrees to serve as Chairman
until such time as he chooses to resign or the Board of Directors elects a new
Chairman. The Chairman's duties shall be as described in the Company's Bylaws.
The Chairman will continue to be a member of the Board of Directors, and will
continue to be an independent outside director, in recognition of his being an
independent contractor and not an employee of the Company.
2. Compensation; Independent Contractor Status
-------------------------------------------
(a) The Company shall pay the Chairman a Chairman's fee of $25,000 per fiscal
quarter of the Company (pro-rated for partial quarters), payable after the end
of each quarter. If the Chairman does not desire to receive his Chairman's fee
in the form of cash, he may elect from time to time to receive it in other forms
under the various plans available to the Company's outside directors. The
Chairman shall not receive the normal Board retainer or any meeting fees, but
shall continue to receive all other benefits received by the Company's outside
directors, including but not limited to (i) life insurance, and (ii) an annual
grant of 3,000 at-market stock options. The Chairman shall also be fully
reimbursed for all of his Company-related expenses.
(b) For fiscal 2000 only, in order to further incentivize the Chairman along
lines that benefit shareholders, the Chairman will also be paid a bonus, which
will only be paid to the extent the Company's present business (including MCR
but without any additional acquisitions which the Company may make) exceeds the
budgeted EBT. A 10% increase in EBT renders a bonus of $30,000, and a 20%
increase in EBT renders a bonus of $100,000. Intervening percentage increases
are pro-rated. The bonus will be paid at the end of the year at the same time
executive bonuses are paid, and will be paid in the form of stock or options
under the Directors Fee Replacement Plan. <PAGE>
(c) The parties agree that the Chairman shall occupy the status of an
independent contractor, and thus shall be responsible for all tax payments as to
his compensation hereunder. Inasmuch as the Chairman is not an employee of the
Company, the Company shall not withhold any income or employment taxes from his
compensation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
CHAIRMAN: GRC INTERNATIONAL, INC.
- ----------------------------- By:
Joseph R. Wright, Jr. ------------------------------------
Gary L. Denman
President & Chief Executive Officer
2
<PAGE>
VICE CHAIRMAN'S AGREEMENT
-------------------------
This AGREEMENT is made and entered into as of September 25, 1997, at Vienna,
Virginia, by and between Peter A. Cohen ("Vice Chairman"), and GRC
International, Inc., a Delaware corporation ("Company").
In consideration of the mutual premises, promises, covenants, and agreements
herein contained, the parties hereby agree as follows:
1. The Position of Vice Chairman
-----------------------------
The Vice Chairman has been elected to the position of Vice Chairman of the Board
of Directors by the unanimous vote of his fellow directors on September 25,
1997. The Vice Chairman accepts his election as Vice Chairman and agrees to
serve as Vice Chairman until such time as he chooses to resign or the Board of
Directors elects a new Vice Chairman or decides not to have a Vice Chairman. The
Vice Chairman will continue to be a member of the Board of Directors, and will
continue to be an independent outside director, in recognition of his being an
independent contractor and not an employee of the Company.
2. Compensation; Independent Contractor Status
-------------------------------------------
(a) In consideration of the Vice Chairman's services as Vice Chairman, the
Company has granted the Vice Chairman a 75,000 share option under the 1996
Officers Stock Option Plan. The Company shall pay him no other separate
compensation as Vice Chairman, but will pay him the normal Board retainer and
meeting fees, after the end of each quarter. If the Vice Chairman does not
desire to receive his retainer and/or meeting fees in the form of cash, he may
elect from time to time to receive them in other forms under the various plans
available to the Company's outside directors. The Vice Chairman shall continue
to receive all other benefits as may be received by the Company's outside
directors, including but not limited to (i) life insurance, and (ii) benefits
provided under the Company's Directors Retirement Plan, as amended, until such
time as such benefits and/or plans are terminated. The Vice Chairman shall also
be fully reimbursed for all of his Company-related expenses in accordance with
Company policy.
(b) The parties agree that the Vice Chairman shall occupy the status of an
independent contractor, and thus shall be responsible for all tax payments as to
his compensation hereunder. Inasmuch as the Vice Chairman is not an employee of
the Company, the Company shall not withhold any income or employment taxes from
his compensation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
VICE CHAIRMAN: GRC INTERNATIONAL, INC.
- ------------------------------ By:
Peter A. Cohen -------------------------------------
Jim Roth
President & Chief Executive Officer
<PAGE>
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:
2
<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
3
<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
4
<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
5
<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
6
<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
7
<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.
8
<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.
9
<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 -----------------------------------
Gary L. Denman
Sr. Vice President, General Counsel & Sec. President & Chief Executive Officer
WITNESS EMPLOYEE
- --------------------------------------- --------------------------------------
(Signature)
--------------------------------------
10
<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:
------------------------------------
Gary L. Denman
President & Chief Executive Officer
11
<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)
12
<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
----------------------------- -----------------------------
----------------------------- -----------------------------
----------------------------- -----------------------------
----------------------------- -----------------------------
13
<PAGE>
EMPLOYEE:
-----------------------------
(Signature)
-----------------------------
(Please print name)
-----------------------------
(Date)
14
<PAGE>
GRC INTERNATIONAL, INC.
EMPLOYMENT AGREEMENT
(SENIOR VICE PRESIDENT - DIVISION DIRECTOR)
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:
2
<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
3
<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
4
<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
5
<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
6
<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
7
<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.
8
<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.
9
<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 -----------------------------------
Sr. Vice President, General Counsel & Sec. Gary L. Denman
President & Chief Executive Officer
WITNESS EMPLOYEE
- --------------------------------------- --------------------------------------
(Signature)
--------------------------------------
(Please print name)
10
<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: None.
------------------------- and/ -------------------------
or
------------------------- --------------------------
------------------------- --------------------------
EMPLOYEE: GRC INTERNATIONAL, INC.
- ----------------------------- By:
------------------------
Gary L. Denman
President & Chief Executive Officer
11
<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)
12
<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
--------------------------- ------------------------------
--------------------------- ------------------------------
--------------------------- ------------------------------
--------------------------- ------------------------------
13
<PAGE>
EMPLOYEE:
--------------------------------
(Signature)
--------------------------------
(Please print name)
--------------------------------
(Date)
14
<PAGE>
SEPARATION AND RELEASE AGREEMENT
--------------------------------
This Separation and Release Agreement ("this Agreement") is entered into as of
April 20, 1999, by and between James L. Selsor, an individual residing at 5009
Grafton Street, Alexandria, VA 22312 ("Employee"); and GRC International, Inc.,
a Delaware corporation with its principal offices at 1900 Gallows Road, Vienna,
Virginia 22182 (together with its subsidiaries, the "Company").
BACKGROUND
----------
The parties have agreed to certain matters in connection with Employee's
separation from the Company, and wish to set forth their agreement below.
AGREEMENT
---------
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. Employment Agreement. Employee and the Company are parties to an Employment
Agreement dated as of October 1, 1997 (as amended by an Amendment to Employment
Agreement also dated as of October 1, 1997, which Amendment automatically
terminated on September 1, 1998) ("Employment Agreement"). Employee and the
Company hereby agree that the Employment Agreement is hereby terminated,
effective immediately. Notwithstanding the foregoing, Employee agrees that the
provisions of Section 1(b) (Duties, regarding non-solicitation), Section 2
(Intellectual Property) and Section 3 (Proprietary Information) survive
Employee's resignation, and Employee agrees that the provisions of Section 1(b)
(Duties, regarding non-solicitation) remain in effect through September 22,
2000. Employee also agrees that any violation of the foregoing provisions shall
automatically render any benefits conferred by this Agreement null and void.
2. Resignation and Transition Plan. Employee provided the Company with six (6)
months advance written notice of his intent to terminate his employment on March
19, 1999. Employee and the Company mutually agree that the transition plan for
Employee's resignation from the Company shall be as follows. Employee's
resignation as an officer of the Company shall be effective April 20, 1999.
Employee shall make himself available for special projects through April 30,
1999 to the extent specifically requested by the Company's President. Employee
will not be expected to report to work unless specifically requested by the
Company's President. Employee will be deemed to continue as an employee through
September 22, 1999. If the Company's President requests Employee's assistance
through September 22, 1999, Employee shall provide reasonable assistance free of
charge. If the Company requests Employee's assistance after September 22, 1999,
Employee shall provide reasonable assistance as a part-time-on-call employee, or
as a consultant under the Company's standard consulting agreement, at the hourly
rate of One Hundred Dollars ($100.00). <PAGE>
3. Payments, Benefits. Employee will be deemed to continue as an employee and
will continue to receive his current salary and benefits through September 22,
1999, however, Employee will not accrue any additional PTO after April 30, 1999.
The Company's records indicate that Employee's health club membership is paid
through September 30, 1999, and Employee may continue to use the health club
through that date. After September 22, 1999, Employee shall be entitled to COBRA
coverage, provided he timely elects such coverage, at Employee's own expense,
for the period prescribed by law. Employee will also be considered for a fiscal
1999 bonus in September 1999, in the Company's sole discretion. The Company also
agrees to forgive Employee's currently outstanding computer loan in the amount
of approximately $2,300.
3. Stock Options.
-------------
(a) Employee has 6,000 incentive stock options under the Company's 1994
Employee Stock Option Plan ("1994 Plan") with an exercise price of $15.44 per
share, originally granted on November 4, 1994. Those options are fully
exercisable. They will expire September 22, 1999, when Employee ceases to be an
employee of the Company.
(b) Employee has 10,000 non-qualified stock options under the 1994 Plan
with an exercise price of $23.19 per share, originally granted on September 21,
1995. These options are 75% exercisable, but subject to action of the
Compensation Committee ("Committee") of the Company's Board of Directors and
subject to all other provisions of the 1994 Plan, they shall become fully
exercisable upon the execution of this Agreement . They will expire September
22, 1999, when Employee ceases to be an employee of the Company.
(c) Employee has 6,250 non-qualified stock options under the 1994 Plan
with an exercise price of $18.313 per share, originally granted on September 26,
1996. These options are 50% exercisable, but subject to action of the Committee
and subject to all other provisions of the 1994 Plan, they shall become fully
exercisable upon the execution of this Agreement. They will expire September 22,
1999, when Employee ceases to be an employee of the Company.
(d) Employee has 10,000 non-qualified stock options under the 1994 Plan
with an exercise price of $5.50 per share, originally granted on July 24, 1997.
These options are not yet exercisable, but subject to action of the Committee
and subject to all other provisions of the 1994 Plan, they shall become fully
exercisable upon the execution of this Agreement. They will expire September 22,
1999, when Employee ceases to be an employee of the Company.
(e) Employee has 20,000 non-qualified stock options under the Company's
1998 Employee Stock Option Plan ("1998 Plan") with an exercise price of $4.844
per share, originally granted on September 17, 1998. These options are not yet
exercisable, but subject to action of the Committee and subject to all other
provisions of
2
<PAGE>
the 1998 Plan, they shall become fully exercisable upon the execution of this
Agreement. They will expire September 22, 1999, when Employee ceases to be an
employee of the Company.
(f) As of March 31, 1999, Employee has 988 non-qualified stock options
under the Company's Cash Compensation Replacement Plan ("CCRP") with various
exercise prices and exercisability dates. Employee's eligibility to participate
in the CCRP automatically ends on April 30, 1999. Subject to action of the
Committee and subject to all other provisions of the CCRP, all of Employee's
CCRP options shall become fully exercisable upon the execution of this
Agreement. They will expire September 22, 2002, pursuant to the terms of the
CCRP.
(g) Notwithstanding anything to the contrary in the foregoing clauses
(a) through (f), if the actions taken with respect to Employee's options make it
difficult for the Company to engage in a "pooling-of-interests" merger, clauses
(a) through (f) shall be null and void, and Employee's options may only be
exercised if, and to the extent, they are exercisable according to their
original terms and the terms of the respective option plans. The determination
of whether such actions make such a merger difficult shall be made by the
Company in its sole discretion. The Company will make a reasonable effort to
notify Employee of any pooling guidelines which may adversely affect his
interests under this Agreement.
(h) Notwithstanding anything to the contrary in the foregoing clauses
(a) through (g), Employee shall contact the Company's General Counsel ("General
Counsel") in advance of his desire to exercise any given option, and shall
exercise his options in the manner indicated by the General Counsel, including
but not limited to payment of the exercise price and withholding taxes in the
manner indicated by the General Counsel.
5. Voicemail, E-mail, etc. The Company will maintain Employee's voicemail and
e-mail accounts for Employee's use through September 22, 1999.
6. Confidentiality of this Agreement. Both parties agree to preserve the
confidentiality of this Agreement, except that both parties may discuss all
aspects of this Agreement with their attorneys and other professional advisors.
7. Company Property. Employee represents and warrants that he has returned to
the Company all property of the Company and its subsidiaries which was in
Employee's possession or under Employee's control. Notwithstanding the
foregoing, Employee may retain his BMW Z3 car phone, which was purchased at
Company expense, and his portable Qualcomm cellular phone, provided Employee
immediately switches the billing for these phones to his personal account, and
makes no calls at Company expense after April 30, 1999.
8. Understanding. Employee agrees (i) that he fully understands his right to
discuss all aspects of this Agreement with his private attorney and that he has
availed
3
<PAGE>
himself of this right to the extent he has desired to do so, (ii) that he has
carefully read and fully understands all of the provisions of this Agreement,
and (iii) that he is voluntarily entering into this Agreement.
9. Release.
-------
(a) For value received, including the additional consideration
described in this Agreement, Employee hereby fully and forever surrenders,
releases, acquits and discharges the Company, its affiliates, directors,
officers, employees, agents, attorneys and insurers, from any and all claims,
demands, causes of action, obligations and liabilities of any kind or nature
whatsoever, arising from or relating to Employee's employment with the Company
or the termination of such employment, including, without limitation, claims
arising under Title VII of the Civil Rights Act of 1964, as amended, the Equal
Pay Act, as amended, the Age Discrimination in Employment Act, the Americans
with Disabilities Act, and/or any other federal, state or local law governing
discrimination in employment and/or the payment of wages and benefits to
employees, and/or claims for costs and attorneys' fees.
(b) Employee acknowledges receipt of this Agreement on April 19, 1999.
In accordance with the Age Discrimination in Employment Act, as amended
("ADEA"), and the Older Workers' Benefit Protection Act of 1990, (i) Employee
expressly acknowledges that he has been advised to consult with an attorney
before signing this Agreement, (ii) Employee has twenty-one (21) days from April
19, 1999 to consider this Agreement, and (iii) Employee has seven (7) days after
signing this Agreement to revoke this Agreement. This Agreement will not be
effective until the above seven (7) day revocation period has expired. Employee
acknowledges that he has been advised that this release includes, but is not
limited to, all claims under the ADEA arising up to and including the date of
execution of this Agreement by Employee.
10. Complaints, Charges or Lawsuits. Employee represents that he has not filed
any complaints or charges or lawsuits against the Company with any governmental
agency or any court, and that he will not do so at any time hereafter with
regard to his employment, the termination thereof or any thing else relating to
his employment or this Agreement; provided, however, this shall not limit
Employee from filing a lawsuit for the sole purpose of enforcing Employee's
rights under this Agreement.
11. Employee Not Aware of Any Violation of Corporate Standards of Conduct.
Employee represents and warrants that he is not aware of any action or situation
involving any violation of the Company's Corporate Standards of Conduct by any
employee, director, consultant of the Company, and that if he becomes aware of
any such action or situation, he will report it to the Company in accordance
with the Company's Corporate Standards of Conduct.
12. Binding Effect. This Agreement shall be binding upon the parties hereto,
their heirs, assigns or successors in interest.
4
<PAGE>
13. Attorney Fees. If any action, proceeding, or arbitration is instituted by or
against any of the parties in order to enforce any of the terms or provisions
hereof, or to construe the rights of the parties hereunder, then the prevailing
party shall be entitled to recover all costs thereof and reasonable attorney
fees as part of the judgment, whether or not such action is prosecuted to
judgment.
14. General Terms. This Agreement contains the entire agreement between the
parties, and all prior negotiations, understandings and agreements are
superseded by this Agreement, except as described above with respect to the
Employment Agreement between Employee and the Company. No amendment,
modification, supplement, termination or waiver of any provision of this
Agreement shall be effective unless in writing and signed by the party against
whom enforcement is sought, and then only in the specific instance and for the
specific purpose given.
15. Further Documents. The parties agree to execute all such other documents as
may be necessary to carry out the provisions and intent of this Agreement.
16. Choice of Law, Forum. This Agreement and all disputes arising hereunder
shall be governed by the laws of the Commonwealth of Virginia, without regard to
conflict of laws. All disputes arising hereunder or in connection herewith shall
be resolved in the Circuit Court of Fairfax County, Virginia, and each of the
parties hereby irrevocably submits to the jurisdiction of said court.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
WITNESS GRC INTERNATIONAL, INC.
- --------------------------- By:
-----------------------------------
Gary L. Denman
President & Chief Executive Officer
WITNESS JAMES L. SELSOR
- --------------------------- ---------------------------------------
James L. Selsor
---------------------------------------
(date)
6
<PAGE>
<TABLE>
<CAPTION>
GRC International, Inc.
Statement of Computation of Earnings Per Share
(in thousands, except for per share amounts)
QTR ENDING YTD ENDING
06/30/99 06/30/98 06/30/99 06/30/98
------------------------- --------------------------
BASIC
<S> <C> <C> <C> <C>
Weighted Average Number of Shares of Common
Stock Outstanding 10,245 10,140 10,230 9,838
Income (Loss) from Continuing Operations 1,486 3,991 8,906 10,702
Income (Loss) from Discontinued Operations 5 0 225 758
------------------------- --------------------------
Net Income (Loss) 1,491 3,991 9,131 11,460
========================= ==========================
Per Share Amount:
Income (Loss) from Continuing Operations 0.15 0.39 0.87 1.09
Income (Loss) from Discontinued Operations 0 0 0.02 0.08
------------------------- --------------------------
Net Income (Loss) 0.15 0.39 0.89 1.17
========================= ==========================
FULLY DILUTED
Weighted Average Number of Shares of Common
Stock Outstanding 10,245 10,140 10,230 9,838
Net Effect of Dilutive Stock Options
Based on the Treasury Stock Method
Using Average Market Price 349 245 268 146
Net Effect of Convertible Debenture
Based on the
if Converted Method (ONLY IF DILUTIVE) 0 0 0 270
------------------------- -------------------------
Weighted Average Shares Outstanding 10,594 10,385 10,498 10,254
========================= ==========================
Income (Loss) from Continuing Operations 1,486 3,991 8,906 10,702
Interest and Amortization on 0 0 0 184
Convertible Debenture (ONLY IF DILUTIVE)
Adjusted Income (Loss) from Continuing Operations 1,486 3,991 8,906 10,886
Income (Loss) from Discontinuing Operations 5 0 225 758
------------------------- --------------------------
Adjusted Net Income (Loss)
1,491 3,991 9,131 11,644
========================= ==========================
Per Share Amount:
Adjusted Income (Loss) from Continuing Operations 0.14 0.38 0.85 1.06
Income (Loss) from Discontinuing Operations 0 0 0.02 0.08
------------------------- --------------------------
Adjusted Net Income (Loss) 0.14 0.38 0.87 1.14
========================= ==========================
</TABLE>
SUBSIDIARIES OF REGISTRANT
--------------------------
As of September 1, 1999, Registrant acquired, as a wholly-owned subsidiary,
Management Consulting & Research, Inc. and its subsidiaries: MCR Federal, Inc.,
MCR Healthcare, Inc., MCR Technologies, Inc., MCR International, Inc. and MCR
Federal Systems, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> JUN-30-1999
<CASH> 88
<SECURITIES> 0
<RECEIVABLES> 36,438
<ALLOWANCES> 136
<INVENTORY> 16
<CURRENT-ASSETS> 48,182
<PP&E> 22,592
<DEPRECIATION> (13,497)
<TOTAL-ASSETS> 76,081
<CURRENT-LIABILITIES> 23,100
<BONDS> 0
0
0
<COMMON> 1,055
<OTHER-SE> 39,004
<TOTAL-LIABILITY-AND-EQUITY> 76,081
<SALES> 164,602
<TOTAL-REVENUES> 164,602
<CGS> 138,770
<TOTAL-COSTS> 138,770
<OTHER-EXPENSES> 16,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,215
<INCOME-PRETAX> 8,043
<INCOME-TAX> 863
<INCOME-CONTINUING> 8,906
<DISCONTINUED> 225
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,131
<EPS-BASIC> 1
<EPS-DILUTED> 1
</TABLE>
