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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ANTEON CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
VIRGINIA 7379 54-1023915
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification
incorporation or organization) Classification Code Number) No.)
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3211 JERMANTOWN ROAD, SUITE 700
FAIRFAX, VIRGINIA, 22030-2801
703-246-0200
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
CURTIS L. SCHEHR, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ANTEON CORPORATION
3211 JERMANTOWN ROAD, SUITE 700
FAIRFAX, VIRGINIA, 22030-2801
703-246-0200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
CARL L. REISNER, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
212-373-3000
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED NOTE PRICE(1) FEE(2)
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12% Senior Subordinated Notes due 2009 $100,000,000 100% $100,000,000 $27,800
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(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933.
(2) The registration fee has been calculated in accordance with Rule 457(f)(1)
under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
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PRIMARY
STATE OR OTHER STANDARD IRS
JURISDICTION OF INDUSTRIAL EMPLOYER
INCORPORATION CLASSIFICATION IDENTIFICATION
NAME OR ORGANIZATION CODE NUMBER NUMBER
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Vector Data Systems, Inc....................... Virginia 8711 54-1559969
Techmatics, Inc................................ Virginia 8711 54-1194322
Analysis & Technology, Inc..................... Connecticut 8711 95-579365
Interactive Media Corp......................... Delaware 7373 25-1096900
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ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANTS' PRINCIPAL
NAME EXECUTIVE OFFICES
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Vector Data Systems, Inc....................... 1100 South Washington St.
Alexandria, VA 22030-2801
Techmatics, Inc................................ 3211 Jermantown Road
Fairfax, VA 22030-2801
Analysis & Technology, Inc..................... Technology Park
Route 2, P.O. Box 220
North Stonington, CT 06359
Interactive Media Corp......................... Technology Park
Route 2, P.O. Box 220
North Stonington, CT 06359
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 9, 1999
PRELIMINARY PROSPECTUS
ANTEON CORPORATION
EXCHANGE OFFER FOR $100,000,000 OF ITS
12% SENIOR SUBORDINATED NOTES DUE 2009
TERMS OF THE EXCHANGE OFFER
- It will expire at 5:00 p.m., New York City time, on 1999,
unless we extend it.
- If all the conditions to this exchange offer are satisfied, we will
exchange all old notes that are validly tendered and not withdrawn.
- You may withdraw your tender of old notes at any time before the
expiration of this exchange offer.
- The exchange notes that we will issue you in exchange for your old notes
will be substantially identical to your old notes except that, unlike your
old notes, the exchange notes will have no transfer restrictions or
registration rights.
- The exchange notes that we will issue you in exchange for your old notes
are new securities with no established market for trading.
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 15.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 1999.
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<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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TABLE OF CONTENTS
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PAGE
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FORWARD-LOOKING STATEMENTS..................... ii
SUMMARY........................................ 1
RISK FACTORS................................... 15
USE OF PROCEEDS................................ 25
CAPITALIZATION................................. 26
SELECTED CONSOLIDATED FINANCIAL DATA........... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 39
BUSINESS....................................... 50
MANAGEMENT..................................... 69
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................... 78
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DESCRIPTION OF OTHER MATERIAL AGREEMENTS....... 79
THE EXCHANGE OFFER............................. 82
DESCRIPTION OF THE NOTES....................... 90
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS............................... 129
PLAN OF DISTRIBUTION........................... 133
LEGAL MATTERS.................................. 134
WHERE YOU CAN OBTAIN ADDITIONAL AVAILABLE
INFORMATION.................................. 134
DOCUMENTS INCORPORATED BY REFERENCE............
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... F-1
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FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information which are based
on forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to our future projects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases, such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, and may also include references to assumptions. These statements are
contained in the sections entitled " Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Anteon
Corporation," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Analysis & Technology, Inc.," "Business" and other
sections of this prospectus.
Such forward-looking statements include, but are not limited to:
- funded backlog;
- our expectations regarding the Federal government's downsizing and
increased reliance on outsourcing of services;
- our financial condition and liquidity, as well as future cash flows and
earnings; and
- Analysis & Technology, Inc.'s financial condition and liquidity, as well
as future cash flows and earnings.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following:
- the integration of Analysis & Technology, Inc. without disruption to our
other business activities;
- changes in general economic and business conditions;
- changes in Federal government procurement laws, regulations and policies;
- the number and type of contracts and task orders awarded to Anteon;
- technological changes;
- the ability to attract and retain qualified personnel;
- changes in Federal government procurement budgets;
- industry capacity;
- competition; and
- our ability to retain our contracts during any rebidding process.
Our risks are more specifically described in "Risk Factors." If one or more
of these risks or uncertainties materialize, or if underlying assumptions prove
incorrect, actual results may vary materially from those expected, estimated or
projected.
We do not undertake to update our forward-looking statements or risk factors
to reflect future events or circumstances.
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SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. WE ENCOURAGE YOU TO READ THE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND
RELATED NOTES, IN ITS ENTIRETY.
UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED IN THIS PROSPECTUS, ALL
REFERENCES TO (I) "ANTEON," "WE" AND "US" ARE TO ANTEON CORPORATION AND ITS
SUBSIDIARIES, AND (II) "A&T" ARE TO ANALYSIS & TECHNOLOGY, INC. AND ITS
SUBSIDIARIES. THE TERM "INITIAL NOTES" REFERS TO THE 12% SENIOR SUBORDINATED
NOTES DUE 2009 THAT WERE ISSUED ON MAY 11, 1999. THE TERM "EXCHANGE NOTES"
REFERS TO THE 12% SENIOR SUBORDINATED NOTES DUE 2009 OFFERED WITH THIS
PROSPECTUS. THE TERM "NOTES" REFERS TO THE INITIAL NOTES AND THE EXCHANGE NOTES
COLLECTIVELY. UNLESS OTHERWISE INDICATED, THE INDUSTRY DATA IS DERIVED FROM
PUBLICLY AVAILABLE SOURCES, WHICH WE HAVE NOT INDEPENDENTLY VERIFIED. YOU SHOULD
PAY SPECIAL ATTENTION TO THE "RISK FACTORS" SECTION TO DETERMINE WHETHER TO
PARTICIPATE IN THIS EXCHANGE OFFER.
THIS PROSPECTUS CONTAINS REFERENCES TO AND DESCRIPTIONS OF A NUMBER OF
INDUSTRY-SPECIFIC TERMS. FOR YOUR CONVENIENCE, THE "GLOSSARY OF TERMS" THAT
APPEARS LATER IN THIS PROSPECTUS PROVIDES EXPLANATIONS OF SUCH TERMS.
THE COMPANY
Anteon is a leading provider of advanced information technology and
engineering systems and services. We serve hundreds of governmental clients,
principally within the U.S. Federal government, from 39 offices worldwide. We
have performed work for the U.S. Congress and all 14 Cabinet-level government
agencies, designing, maintaining and upgrading critical systems such as defense,
intelligence, emergency response, logistics support and financial management
systems. For the year ended December 31, 1998, we performed work on
approximately 3,000 task orders on more than 500 contracts. In addition, during
the past four years, we have increased revenues at a 32.0% compound annual
growth rate including a 19.9% compound annual growth rate excluding
acquisitions. Pro forma for our acquisition of A&T described below under "--The
Transactions," our 1998 revenues and Adjusted EBITDA (as defined) were $450.8
million and $35.1 million, respectively. Similarly, cash flows used in
operations on a pro forma basis were $2.3 million for 1998.
The Federal government is among the world's largest purchasers of
information technology, with total expenditures in fiscal 1999 expected to be in
excess of $30 billion and expected to increase by approximately 4.4% per annum
from $29.5 billion in 1998 to $35.1 billion in 2002. Due to projected increased
Federal government outsourcing, the amount of information technology services
procured from contractors is expected to increase at a faster rate, by
approximately 6.9% per annum from 1998 to 2002. We believe that the emphasis of
the Federal government on downsizing and budget constraints for large new
projects will continue to result in the increased use of technology to enhance
productivity with expenditures focused on upgrading existing equipment and
systems, including many that we designed and are currently supporting. In this
environment, contractors like us that are capable of providing complete
end-to-end technology services across a number of applications are
well-positioned to take advantage of the opportunities presented by these
trends.
We have developed over a 22-year period the expertise and capabilities to
deliver a broad range of technology solutions. For example, we are currently
working with the U.S. Federal Emergency Management Agency to design and
integrate the National Emergency Management Information System, a management
information system that enables the White House and other governmental offices
to effectively monitor and mobilize multiple agencies and financial resources in
response to national emergencies. This program is the largest WindowsNT
implementation in the Federal government and we believe it is the most
comprehensive emergency management system available. In addition, we believe
there is significant potential for generating additional revenues based on the
knowledge we have acquired in designing and integrating this system and its wide
applicability to other government agencies and projects. Another example of our
work is the logistics system we developed for the U.S. Air Force called Cargo
Movement Operation System ("CMOS"). CMOS tracks all equipment and cargo movement
1
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operations for the Air Force world wide. This system is the first standard U.S.
Air Force client/server application to be installed. CMOS is currently installed
at air bases worldwide, and was recently chosen by the Office of the Secretary
of Defense to be the model transportation system for the Department of Defense.
As a result of developing and integrating CMOS, we were awarded another major
logistics automation contract to develop a model logistics system to manage the
transportation requirements of all branches of the U.S. armed forces.
COMPETITIVE STRENGTHS
We attribute our growth and performance to several factors, including the
following:
- BROAD ENGINEERING AND INFORMATION TECHNOLOGY CAPABILITIES. We have
developed comprehensive information technology and engineering expertise
and capabilities over our 22-year history of providing support for
critical applications within the Federal government's military and
intelligence infrastructure. Our employees are highly trained, enabling us
to provide services for many complex governmental systems, including
defense, intelligence, emergency response, logistics support and financial
management.
- LEADING FEDERAL GOVERNMENT SYSTEMS INTEGRATOR AND STRONG REPUTATION. We
believe that the Federal government primarily uses three criteria in
seeking suppliers of technical systems and services: the ability to
deliver a broad range of sophisticated technical capabilities; a track
record of excellence in servicing the needs of the Federal government; and
the ability to deliver at a competitive price. Based on these criteria, we
have developed a reputation as a premier provider to the Federal
government and we have received numerous awards for our broad technical
expertise and consistently high quality performance. In March, 1999 we
were ranked as the No. 1 systems integrator in a survey of over 1,200
Federal government customers by FEDERAL COMPUTER WEEK, a leading
publication in the Federal government information technology sector. We
believe that our demonstrated capabilities and reputation for service
excellence have allowed us to maintain our position as an incumbent
service provider on 100% of our major contracts that have been recompeted
over the past three years.
- DIVERSE CUSTOMER AND CONTRACT BASE; STRONG INCUMBENT POSITIONS. We have a
diverse customer base with hundreds of governmental clients worldwide,
which has included all 14 Cabinet-level agencies and all branches of the
military. In 1998 we performed work on approximately 3,000 task orders,
and since 1996 we have completed approximately 7,000 task orders for our
clients. In executing these orders, we have acquired extensive knowledge
of the particular information technology needs of our clients, and we
believe that our typical position as the incumbent designer and integrator
enables us to anticipate their changing technical requirements. These
factors often position us as the preferred provider of ongoing support,
upgrades and next generation systems development. As a result of these
relationships we have developed a backlog of approximately $1.3 billion
(and, after giving pro forma effect to the Acquisition, a backlog of $2.1
billion as of June 30, 1999), providing significant predictability of
revenues. For a further discussion of management's calculation of our
backlog, please refer to the section in this prospectus entitled
"Business--Backlog."
- STRONG OPERATIONS MANAGEMENT; LOW COST STRUCTURE. Our focus on control of
indirect costs and cost center flexibility has permitted us to increase
profitability and we believe that we have achieved one of the lowest cost
structures in the industry. Management has developed rigorous control
procedures to mitigate losses in "at risk" situations where task order
performance has commenced but funding or appropriation has not been
formally authorized or where contract performance has begun because
management considers the award of a contract to be imminent. We also
employ management information and resource management systems to maximize
operational efficiency and reduce indirect costs. Our indirect costs have
been reduced to 15% of revenues in 1998 compared to an industry peer group
average estimated by management to be between 18% to 20%,
2
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and we have increased EBITDA margins from 1.9% in 1995 to 6.6% in 1998,
after giving pro forma effect to the Techmatics acquistion.
- WELL-POSITIONED TO CAPITALIZE ON INDUSTRY GROWTH. Federal government
information technology spending will total approximately $30 billion in
1999 according to the Office of Management and Budget and is expected to
increase to $35.1 billion in 2002. In addition, the outsourced portion of
this spending is expected to increase from 78% in 1998 to 86% in 2002. Due
to this increased outsourcing, the amount of information technology
services procured from contractors is estimated to increase at 6.9% per
year from 1998 to 2002. Anteon believes that growth in Federal government
information technology spending will be driven by government downsizing,
increased outsourcing and increasing attempts to utilize more efficient
means of procurement. We expect a significant portion of this growth to be
derived from major government-wide acquisition contract vehicles, such as
the $25 billion GSA ANSWER multiple-award contract and the $10 billion
Department of Transportation ITOP II multiple-award contract. We are one
of a limited number of qualified suppliers under both of these major
contract vehicles. We believe that our size, capabilities, reputation and
long-standing relationships combined with our position as incumbent
supplier to many Federal government agencies, position us to capitalize on
the opportunities presented by these industry trends.
- STRONG MANAGEMENT AND HIGHLY EXPERIENCED BOARD. Each of the five senior
members of Anteon's management team has over 20 years of experience in
managing both small and large companies in both the defense and commercial
markets. In addition, several members of management and the Board of
Directors are former military officers or senior government officials who
are familiar with the information technology requirements of government
agencies. Dr. Paul Kaminski, a director of Anteon, recently served as
Under Secretary of Defense for Acquisition and Technology. Mr. Gilbert
Decker, a Director of Anteon, recently served as Assistant Secretary of
the U.S. Army for Research, Development and Acquisition, and in that
capacity led the Army's acquisition and procurement reform efforts. Our
management team is responsible for our growth and improved profitability
in the current procurement environment and has a significant equity stake
in Anteon through direct investment and equity-based incentives.
BUSINESS STRATEGY
We believe that a key element of Anteon's success is its high standard of
performance and customer service. Past performance is one of the three critical
elements the government employs to evaluate information technology suppliers.
Our demonstrated performance record and service excellence have enabled us to
maintain our position as an incumbent service provider on 100% of our major
contracts that have been recompeted over the past three years. We believe that
our high-level technical abilities and low cost structure will allow us to
further expand our customer base, improve our operating results and continue to
grow. Specifically, we will pursue the following business strategies:
- BROADEN CAPABILITIES. We continually seek to acquire new expertise and
keep pace with developments in technology by acquiring and training our
employees and acquiring technologies to complement our skill set. We are
aggressively pursuing several new disciplines that complement our existing
technology capabilities. Particular areas of expertise we are pursuing
include network communications, remote sensor information processing,
geographic information systems and information security. We also seek to
broaden our technology skills by providing extensive training to new and
current employees. For example, we have an extensive in-house,
computer-based training program consisting of over 150 courses. These
efforts will enable us to remain at the forefront of information
technology applications and be more responsive and flexible in servicing
the needs of our customers.
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- LEVERAGE EXPERIENCE AND REPUTATION TO EXPAND MARKET SHARE. We have
performed a variety of services for a diverse base of customers, including
hundreds of governmental clients worldwide, including all Cabinet-level
agencies and all branches of the military. The new Federal government
procurement environment has reduced the number of suppliers and favors
those companies with experience and broad capabilities. We plan to
leverage our comprehensive capabilities and our position as the incumbent
provider on critical Federal government applications to provide complete
end-to-end services including new systems development, integration,
upgrades, maintenance, support and training. To support our plans, we have
increased our national and global presence, opening offices in
Albuquerque, New Mexico; Colorado Springs, Colorado; Australia and Asia.
We have also acquired a comprehensive new business development and bidding
software system, known as WinAward, which scans for and targets new
programs or task orders which require skills and services particularly
suited to Anteon's capabilities. This system provides early identification
of prospects, allowing us to mobilize the resources necessary to win the
award.
- CONTINUE TO IMPROVE OPERATING AND FINANCIAL PERFORMANCE. We believe that a
key element of our success in the Federal government market has been our
continuous pursuit of cost reductions and focus on working capital
management. We have developed and employ integrated management information
and resource management systems and policies that have enabled us to
maintain indirect cost levels that we believe are among the lowest in the
industry. We will continue to leverage our operating efficiency and risk
management capabilities to bid aggressively on contracts to further
improve our operating and financial performance.
- PURSUE STRATEGIC ACQUISITIONS. We believe the changes in the government
procurement market will result in continuing consolidation opportunities.
We will selectively review acquisition candidates with a focus on
companies having complementary skills and established positions in key
segments of the marketplace that provide opportunities for revenue
enhancement or a reduction in indirect costs. A key element of all
acquisitions is the existence of rigorous risk management procedures and
strong operational management.
THE TRANSACTIONS
On March 7, 1999, Anteon entered into a definitive merger agreement to
acquire all of the issued and outstanding shares of common stock of A&T at a
price of $26.00 per share. We consummated the acquisition on June 23, 1999 after
the approval of the acquisition by the stockholders of A&T. In connection with
the acquisition, Anteon received an equity contribution of $22.5 million from
affiliates of Caxton-Iseman Capital, Inc. In addition, in connection with the
acquisition we entered into a new credit facility in an aggregate principal
amount of $180.0 million, a portion of which was used to repay all of the
amounts previously outstanding under Anteon's and A&T's credit facilities. For
purposes of this prospectus, the "Transactions" refers to the acquisition, the
issuance of the initial notes, the equity contribution, the borrowings under the
new credit facility in connection with the Acquisition and the repayment of the
outstanding debt under the current credit facilities of A&T and Anteon.
Caxton-Iseman Capital is a New York based private equity investment company
founded in 1993. Caxton-Iseman Capital currently manages a $600 million private
investment fund on behalf of a select group of limited partners and seeks to
invest with management of companies positioned for growth in a variety of
industries. Caxton-Iseman Capital has made investments in eleven companies
including Magnavox Electronic Systems, Inc., Leisure Link Holdings and Glass's
Group.
Please refer to the section entitled "The Transactions" which appears later
in this prospectus for additional information.
------------------------
Our executive offices are located at 3211 Jermantown Road, Suite 700,
Fairfax, Virginia, 22030-2801 and our telephone number is (703) 246-0200.
4
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SUMMARY OF THE EXCHANGE OFFER
We are offering to exchange $100,000,000 aggregate principal amount of our
exchange notes for a like aggregate principal amount of our initial notes. In
order to exchange your initial notes, you must properly tender them and we must
accept your tender. We will exchange all outstanding initial notes that are
validly tendered and not validly withdrawn.
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Exchange Offer............... We will exchange our exchange notes for a like aggregate
principal amount at maturity of our initial notes.
Expiration Date.............. This exchange offer will expire at 5:00 p.m., New York City
time, on , 1999, unless we decide to extend it.
Conditions to the Exchange
Offer...................... We will complete this exchange offer only if:
- there is no litigation or threatened litigation which
would impair our ability to proceed with this exchange
offer,
- there is no change in the laws and regulations which would
impair our ability to proceed with this exchange offer,
- there is no change in the current interpretation of the
staff of the Commission which permits resales of the
exchange notes,
- there is no stop order issued by the Commission which
would suspend the effectiveness of the registration
statement which includes this prospectus or the
qualification of the exchange notes under the Trust
Indenture Act of 1939, and
- we obtain all the governmental approvals we deem necessary
to complete this exchange offer.
Please refer to the section in this prospectus entitled "The
Exchange Offer--Conditions to the Exchange Offer."
Procedures for Tendering
Initial Notes.............. To participate in this exchange offer, you must complete,
sign and date the letter of transmittal or its facsimile and
transmit it, together with your initial notes to be
exchanged and all other documents required by the letter of
transmittal, to IBJ Whitehall Bank & Trust Company, as
exchange agent, at its address indicated under "The Exchange
Offer--Exchange Agent." In the alternative, you can tender
your initial notes by book-entry delivery following the
procedures described in this prospectus. If your initial
notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee, you should
contact that person promptly to tender your initial notes in
this exchange offer. For more information on tendering your
notes, please refer to the section in this prospectus
entitled "The Exchange Offer--Procedures for Tendering
Initial Notes."
Guaranteed Delivery
Procedures................. If you wish to tender your initial notes and you cannot get
the required documents to the exchange agent on time, you
may tender your notes by using the guaranteed delivery
procedures described under the section of this prospectus
entitled "The Exchange Offer--
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Procedures for Tendering Initial Notes--Guaranteed Delivery
Procedure."
Withdrawal Rights............ You may withdraw the tender of your initial notes at any
time before 5:00 p.m., New York City time, on the expiration
date of the exchange offer. To withdraw, you must send a
written or facsimile transmission notice of withdrawal to
the exchange agent at its address indicated under the "The
Exchange Offer--Exchange Agent" before 5:00 p.m., New York
City time, on the expiration date of the exchange offer.
Acceptance of Initial Notes
and Delivery of Exchange
Notes...................... If all the conditions to the completion of this exchange
offer are satisfied, we will accept any and all initial
notes that are properly tendered in this exchange offer on
or before 5:00 p.m., New York City time, on the expiration
date. We will return any initial notes that we do not accept
for exchange to you without expense as promptly as
practicable after the expiration date. We will deliver the
exchange notes to you as promptly as practicable after the
expiration date and acceptance of your initial notes for
exchange. Please refer to the section in this prospectus
entitled "The Exchange Offer--Acceptance of Initial Notes
for Exchange; Delivery of Exchange Notes."
Federal Income Tax Considera-
tions Relating to the
Exchange Offer............. Exchanging your initial notes for exchange notes should not
be a taxable event to you for United States federal income
tax purposes. Please refer to the section of this prospectus
entitled "Certain United States Federal Income Tax
Considerations."
Exchange Agent............... IBJ Whitehall Bank & Trust Company is serving as exchange
agent in the exchange offer.
Fees and Expenses............ We will pay all expenses related to this exchange offer.
Please refer to the section of this prospectus entitled "The
Exchange Offer--Fees and Expenses."
Use of Proceeds.............. We will not receive any proceeds from the issuance of the
exchange notes. We are making the exchange offer solely to
satisfy certain of our obligations under our registration
rights agreement.
Consequences to Holders who
do not Participate in the
Exchange Offer............. If you do not participate in this exchange offer:
- you will not necessarily be able to require us to register
your initial notes under the Securities Act,
- you will not be able to resell, offer to resell or
otherwise transfer your initial notes unless they are
registered under the Securities Act or unless you resell,
offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act, and
- the trading market for your initial notes will become more
limited to the extent other holders of initial notes
participate in the exchange offer.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Please refer to the section in this exchange offer entitled
"Risk Factors--Your failure to participate in the exchange
offer will have adverse consequences."
</TABLE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Issuer....................... Anteon Corporation.
Notes Offered................ $100 million aggregate principal amount of 12% Senior
Subordinated Notes due 2009. The form and terms of the
exchange notes are the same as the form and terms of the
initial notes except that the exchange notes are registered
under the Securities Act, will not bear legends restricting
their transfer and will not be entitled to registration
rights under our registration rights agreement. The exchange
notes will evidence the same debt as the initial notes and
both the initial notes and the exchange notes will be
governed by the same indenture.
Maturity Date................ May 15, 2009.
Interest Payment Dates....... We will pay interest on the exchange notes on May 15 and
November 15 of each year, commencing November 15, 1999.
Optional Redemption.......... We cannot redeem the exchange notes prior to May 15, 2004,
except as discussed below. Until May 15, 2002, we can choose
to redeem the exchange notes in an amount not to exceed 25%
of the sum of the original principal amount of the exchange
notes and the original principal amount of any other notes
issued under the same Indenture, with money we raise in
certain equity offerings, as long as:
- we pay the holders of the exchange notes and any such
other notes redeemed a redemption price of 112% of the face
amount of the exchange notes and any such other notes we
redeem, plus accrued interest to the date of redemption;
and
- at least 75% of the original aggregate principal amount of
the exchange notes (including the original principal amount
of any additional notes) remains outstanding after each
such redemption.
On or after May 15, 2004, we can redeem some or all of the
exchange notes at the redemption prices listed in the
"Description of the Notes--Optional Redemption" section of
this prospectus, plus accrued interest to the date of
redemption.
Change of Control............ If a Change of Control of our company occurs, subject to
certain conditions, we must give holders of the exchange
notes an opportunity to sell to us their exchange notes at a
purchase price of 101% of their face amount, plus accrued
interest. The term "Change of Control" is defined in the
"Description of the Notes--Change of Control" section of
this prospectus.
Ranking...................... The exchange notes will be unsecured and subordinated
obligations and will rank junior to our existing and future
senior indebtedness. As of June 30, 1999, we had $73.0
million outstanding under our new credit facility. The
exchange notes will rank PARI PASSU in right of payment with
any future Senior Subordinated Indebtedness and will
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
rank senior to any other subordinated indebtedness. The
terms "Senior Indebtedness" and "Senior Subordinated
Indebtedness" are defined in the "Description of the
Notes--Certain Definitions" section of this prospectus.
Subsidiary Guaranties........ Our obligations to make any principal, premium and interest
payments on the exchange notes will be fully and
unconditionally guaranteed on a senior subordinated basis by
each of our existing and certain of our future domestic
subsidiaries. These subsidiary guaranties will be
subordinated to all existing and future Senior Indebtedness
of such subsidiaries, including their guarantee of our
obligations under the new credit facility. Please refer to
the sections in this prospectus entitled "Description of the
Notes--Subsidiary Guaranties" and "-- Certain
Covenants--Future Guarantors."
Restrictive Covenants........ The Indenture governing the exchange notes will contain
covenants that limit our ability and our subsidiaries'
ability to:
- incur or guarantee additional indebtedness;
- pay dividends or other distributions on our capital stock
or redeem, repurchase or retire our capital stock or
subordinated obligations;
- make investments;
- issue or sell capital stock of subsidiaries;
- engage in transactions with affiliates;
- restrict dividend or other payments to us;
- transfer or sell assets; and
- consolidate, merge or transfer all or substantially all of
our assets and the assets of our subsidiaries.
These covenants are subject to important exceptions and
qualifications, which are described in the "Description of
the Notes--Certain Covenants" section of this prospectus.
Federal Income Tax Considera-
tions Relating to the
Exchange Offer............. Exchanging your initial notes for exchange notes will not be
a taxable event to you for United States federal income tax
purposes. Please refer to the section of this prospectus
entitled "Certain United States Federal Income Tax
Considerations."
Absence of a Public Market
for the Exchange Notes..... The exchange notes are new securities with no established
market for them. We cannot assure you that a market for
these notes will develop or that this market will be liquid.
Form of the Exchange Notes... The exchange notes will be represented by one or more
permanent global securities in bearer form deposited on
behalf of The Depository Trust Company with IBJ Whitehall
Bank & Trust Company, as custodian. You will not receive
exchange notes in registered form unless one of the events
described in the section of this prospectus entitled
"Description of the Notes--Book Entry; Delivery and Form"
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
occurs. Instead, beneficial interests in the exchange notes
will be shown on, and transfers of these notes will be
effected only through, records maintained in book-entry form
by The Depository Trust Company with respect to its
participants. Initial notes issued in certificated form may
be exchanged for beneficial interests in the global
securities.
</TABLE>
RISK FACTORS
You should carefully consider all of the information provided in this
prospectus and, in particular, you should evaluate the specific factors
described under "Risk Factors" for a description of the risks associated with
this exchange offer and an investment in the exchange notes.
9
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following summary unaudited pro forma condensed consolidated financial
data of Anteon has been derived from the pro forma financial statements included
under Unaudited Pro Forma Condensed Consolidated Financial Data. The pro forma
statement of operations and other data give effect to the Transactions and
Anteon's acquisition of Techmatics, Inc. on May 29, 1998, as if they each
occurred on January 1, 1998. This pro forma data is not necessarily indicative
of Anteon's financial condition or actual results of operations that would have
occurred had the Transactions occurred on such date or of any expected future
results. This information should be read in conjunction with "Unaudited Pro
Forma Condensed Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Anteon Corporation,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Analysis & Technology, Inc." and the historical consolidated
financial statements of Anteon, Techmatics and A&T, together with the respective
notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FOR THE YEAR FOR THE SIX
ENDED MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -----------------
<S> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues................................................................... $ 450,786 $ 235,706
Gross profit............................................................... 57,130 30,686
Operating income........................................................... 19,377 11,251
Interest expense, net...................................................... 22,546 11,453
Loss before income taxes................................................... (3,194) (219)
Income tax expense (benefit)............................................... (9) 547
-------- --------
Net loss................................................................... $ (3,185) $ (766)
-------- --------
-------- --------
OTHER DATA:
Cash interest expense (a).................................................. $ 19,060 $ 9,650
EBITDA (b)................................................................. 31,437 16,530
Adjusted EBITDA (c)........................................................ 35,093 17,910
Cash flow from (used in) operating activities.............................. (2,315) 18,304
Gross margin............................................................... 12.7% 13.0%
Capital expenditures....................................................... $ 5,105 $ 2,652
Adjusted EBITDA to cash interest expense................................... 1.8x 1.9x
Adjusted EBITDA minus capital expenditures to cash interest expense........ 1.6x 1.6x
Net debt to Adjusted EBITDA (d)............................................ 4.9x
</TABLE>
- ------------------------
(a) Cash interest expense excludes the noncash portion of interest expense.
(b) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA also excludes infrequent and unusual charges of $0.1
million for the year ended December 31, 1998 relating to asset write-offs at
Techmatics, and $0.24 million for the six months ended June 30, 1999
relating to a settlement with a former executive. Management believes that
these charges will not recur and will not result in future cash charges.
EBITDA is presented because we believe that it is a widely accepted
supplemental indicator of an entity's ability to incur and service debt.
However, EBITDA should not be considered by an investor as an alternative to
net income or operating income as an indicator of our operating performance
or cash flow from operations, or as an alternative to cash flows as a
measure of liquidity.
10
<PAGE>
(c) Management believes that additional cost savings of $3.7 million will be
generated through reduced general and administrative expenses and the
allocation of a portion of Anteon's corporate expenses to A&T. Anteon's
Adjusted EBITDA equals pro forma EBITDA plus the following adjustments:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Pro forma EBITDA.................................................. $ 31,437 $ 16,530
Anteon indirect cost reductions................................... 1,190 160
Increase in billable indirect costs............................... 2,466 1,220
------- -------
Adjusted EBITDA................................................. $ 35,093 $ 17,910
</TABLE>
ANTEON INDIRECT COSTS REDUCTIONS. Anteon has reduced indirect personnel
(I.E., personnel not directly engaged in contract performance) saving
approximately $1.2 million in total salary expense. In addition, on January
1, 1999 Anteon replaced Techmatics' employee benefits programs with its own
employee benefits programs to ensure consistency in benefits among its
employees. These new programs have resulted in savings of approximately $1.0
million per year. In 1999, Anteon closed a Techmatics office facility and
further reduced indirect overhead which produced combined savings of $1.9
million. Because the government previously reimbursed Anteon for a portion
of these expenses under cost-plus contracts, Anteon and the government will
share in the benefit of the expense reduction with Anteon realizing $1.2
million for the year ended December 31, 1998 and $0.2 million for the six
months ended June 30, 1999 of additional EBITDA and the government realizing
$2.9 million of lower costs annually.
INCREASE IN BILLABLE INDIRECT COSTS. After giving pro forma effect to
the acquisition of A&T, the level of billable indirect costs under our
contracts will increase because the proportion of our revenues generated by
cost-plus contracts will increase from 40% to 55%. This adjustment to
indirect billable costs is determined pursuant to government regulations and
accounting standards. As a result of this adjustment, Anteon will be
permitted to bill the government for a greater portion of its indirect
costs. Based on our ability to pass such indirects costs through to our
government customers, we estimate this will result in an additional
reimbursable costs of $2.5 million for the year ended December 31, 1998 and
$1.2 million for the six months ended June 30, 1999. As management
implements cost reductions following the acquisition, these savings will be
passed through to our customers.
There can be no assurances, however, that the projected cost savings
outlined above will be achieved.
Adjusted EBITDA has not been examined, reviewed or compiled by KPMG LLP, and
accordingly no opinion has been expressed on Adjusted EBITDA by said firm.
(d) Represents the ratio of net debt to Adjusted EBITDA using net debt as of
June 30, 1999 and Adjusted EBITDA for the year ended December 31, 1998.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA--ANTEON CORPORATION
The following summary consolidated financial data has been derived from (1)
in the case of Anteon, its unaudited consolidated financial statements as of
June 30, 1999 and for the six months ended June 30, 1999 and 1998 and its
audited consolidated financial statements for the years ended December 31, 1998
and 1997 and for the period from April 1, 1996 to December 31, 1996 and (2) in
the case of Ogden Professional Services Corporation (the "Predecessor Company"),
its audited consolidated financial statements for the period from January 1,
1996 to March 31, 1996. In the opinion of management, the unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, that are necessary for a fair presentation of the financial position
and results of operations for these periods. Each of the audited consolidated
financial statements of Anteon and our Predecessor Company have been audited by
KPMG LLP, independent certified public accountants. The results of operations
for each period presented below are not comparable to the prior period as a
result of business acquisitions consummated in 1997, 1998 and 1999. Results of
operations of these acquired businesses are included in Anteon's consolidated
financial statements for the periods subsequent to the respective dates of
acquisition. You should read the following information in conjunction with
"Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Anteon Corporation," "Business" and the historical consolidated
financial statements of Anteon, together with the notes thereto, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PREDECESSOR ANTEON
COMPANY(A) -------------------------------------------------------
------------- PERIOD FROM
PERIOD FROM APRIL 1,
JANUARY 1, 1996
1996 TO YEAR ENDED SIX MONTHS ENDED
TO DECEMBER DECEMBER 31, JUNE 30,
MARCH 31, 31, -------------------- --------------------
1996 1996 1997 1998 1998 1999
------------- ----------- --------- --------- --------- ---------
(DOLLARS IN (DOLLARS IN THOUSANDS)
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 32,046 $ 109,780 $ 176,292 $ 249,776 $ 108,196 $ 145,609
Gross profit................... 2,828 9,354 16,753 28,188 12,057 17,033
Operating income............... 757 2,678 5,080 10,443 5,009 6,648
Interest expense, net.......... -- 1,455 2,365 1,736 1,736 5,500
Income before provision for
income taxes and
extraordinary item........... 757 1,223 2,702 4,821 3,259 1,131
Income tax expense............. 303 416 1,063 2,353 1,310 399
Net income before extraordinary
item......................... $ 454 $ 807 $ 1,639 $ 2,468 1,949 732
Extraordinary item, net of
tax.......................... -- -- -- -- -- 463(b)
------------- ----------- --------- --------- --------- ---------
Net income..................... 454 807 1,639 2,468 1,949 269
------------- ----------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- ---------
OTHER DATA:
EBITDA(c)...................... $ 1,143 $ 5,800 $ 9,583 $ 15,988 $ 7,112 $ 9,393
EBITDA margin.................. 3.6% 5.3% 5.4% 6.4% 6.6% 6.5%
Cash flow from (used in)
operating activities......... $ 2,224 $ 7,519 $ 14,094 $ (8,340) $ (9,426) $ 5,677
Capital expenditures........... 211 376 817 2,089 1,164 1,335
Ratio of earnings to fixed
charges(d)................... 4.5x 1.6x 1.8x 1.6x 2.3x 1.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1999
-------------
<S> <C>
BALANCE SHEET DATA:
Current assets..................................................................................... $ 106,459
Working capital.................................................................................... $ 43,602
Total assets....................................................................................... 287,107
</TABLE>
12
<PAGE>
- ------------------------
(a) Represents the results of operations and financial position of our
Predecessor Company prior to its acquisition by Anteon.
(b) Represents the write-off of $772 of deferred financing fees, net of income
taxes of $309, related to the existing credit facility which was repaid
early in conjunction with the Transactions.
(c) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA also excludes a one-time noncash, nonrecurring charge
of $0.1 million relating to asset write-offs at Techmatics. Management
believes that these charges will not recur and will not result in future
cash charges. EBITDA is presented because we believe that it is a widely
accepted supplemental indicator of an entity's ability to incur and service
debt. However, EBITDA should not be considered by an investor as an
alternative to net income or operating income as an indicator of our
operating performance or cash flow from operations, or as an alternative to
cash flows as a measure of liquidity.
(d) For purposes of this computation, earnings are defined as losses plus fixed
charges. Fixed charges are the sum of (i) interest expensed and capitalized,
(ii) amortization of deferred financing costs, premium and debt discounts,
(iii) the portion of operating lease rental expense that is representative
of the interest factor (deemed to be one-third) and (iv) dividends on
preferred stock.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA--ANALYSIS & TECHNOLOGY, INC.
The following summary consolidated financial data has been derived from
A&T's audited consolidated financial statements as of March 31, 1997, 1998, and
1999, and for the years ended March 31, 1996, 1997, 1998, and 1999, which have
been audited by KPMG LLP, independent certified public accountants. The results
of operations for each period presented below are not comparable to the prior
period as a result of business acquisitions consummated in 1997 and 1998.
Results of operations of these acquired businesses are included in A&T's
consolidated financial statements for the periods subsequent to the respective
dates of acquisition. You should read this data in conjunction with
"Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Analysis & Technology, Inc." "Business" and the historical
consolidated financial statements of A&T, together with the notes thereto,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
1996 1997 1998(A) 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues......................................................... $ 122,924 $ 142,547 $ 159,956 $ 170,355
Operating earnings............................................... 6,254 6,770 7,945 10,280
Interest expense, net............................................ 512 319 171 350
Income before provision for income taxes......................... 5,404 5,813 8,344 8,751
Income tax expense............................................... 1,816 2,437 4,152 3,879
---------- ---------- ---------- ----------
Net earnings from continuing operations.......................... $ 3,588 $ 3,376 $ 4,192 $ 4,872
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
OTHER DATA:
EBITDA (b)....................................................... $9,155 $9,337 $11,781 $12,620
EBITDA margin.................................................... 7.4% 6.6% 7.4% 7.4%
Cash flow from operating activities.............................. $3,123 $9,108 $ 7,774 $ 6,130
Capital expenditures............................................. 1,748 2,327 3,031 2,508
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Current assets................................................................... $ 28,869 $ 28,088 $ 31,110
Working capital.................................................................. 16,578 14,455 15,925
Total assets..................................................................... 57,813 63,609 73,746
</TABLE>
- ------------------------
(a) Includes the results of operations of Command Control, Inc. from October
1997, Interactive Media Solutions, Inc. from April 1997, UP, Inc. from
November 1997, Dalco Electronics Corporation from August 1997 and Cambridge
Acoustical Associates, Inc. from February 1998, the respective dates of
acquisition by A&T.
(b) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA is presented because we believe that it is a widely
accepted supplemental indicator of an entity's ability to incur and service
debt. However, EBITDA should not be considered by an investor as an
alternative to net income or operating income as an indicator of operating
performance or cash flow from operations, or as an alternative to cash flows
as a measure of liquidity.
14
<PAGE>
RISK FACTORS
BEFORE YOU TENDER THE INITIAL NOTES IN THE EXCHANGE OFFER, YOU SHOULD
CAREFULLY CONSIDER THESE RISK FACTORS, AS WELL AS THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING OUR COMPANY. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. CERTAIN
STATEMENTS IN THIS PROSPECTUS (INCLUDING CERTAIN OF THE FOLLOWING RISK FACTORS)
CONSTITUTE FORWARD-LOOKING STATEMENT. SEE "FORWARD-LOOKING STATEMENTS."
RISK FACTORS RELATING TO THE NOTES
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD AVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have a significant amount of debt outstanding. You should be aware that
this level of debt could have important consequences to you as a holder of the
notes. Below we have identified for you some of the material potential
consequences resulting from this significant amount of debt.
- We may be unable to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purposes.
- A significant portion of our cash flow from operations must be dedicated
to the repayment of indebtedness, thereby reducing the amount of cash we
have available for other purposes.
- Our ability to adjust to changing market conditions may be hampered. We
may be more vulnerable in a volatile market.
ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND
OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD
FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur additional indebtedness in the
future. The terms of the Indenture limit but do not prohibit us or our
subsidiaries from doing so. Our new credit facility currently permits additional
borrowings of up to $53.4 million, based on our current borrowing base and ratio
of net debt to EBITDA (as defined in the new credit facility) and amounts
currently outstanding under the revolving credit facility, and any such
borrowings will be senior to the notes and the Subsidiary Guarantees (as defined
in "Description of the Notes--Certain Definitions"). If new debt is added by us
or our subsidiaries, the related risks that we and they now face could
intensify. Please refer to the sections in this prospectus entitled
"Capitalization," "Selected Consolidated Financial Data," "Description of Other
Material Agreements--New Credit Facility" and "Description of the Notes."
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
You should be aware that our ability to repay or refinance our debt depends
on our successful financial and operating performance. We cannot assure you that
our business strategy will succeed or that we will achieve our anticipated
financial results. Our financial and operational performance depends upon a
number of factors, many of which are beyond our control. These factors include:
- the current economic and competitive conditions in the information
technology industry;
- Federal government spending levels, both generally and by our particular
customers;
- any operating difficulties, operating costs or pricing pressures we may
experience;
- the passage of legislation or other regulatory developments that affects
us adversely; and
- any delays in implementing any strategic projects we may have.
We cannot assure you that we will generate sufficient cash flow from
operations or that we will be able to obtain sufficient funding to satisfy all
of our obligations, including the notes. Our ratio of EBITDA to total cash
interest expense for the six months ended June 30, 1999 would have been 2.3 to
1.0. If we are
15
<PAGE>
unable to pay our debts, we will be required to pursue one or more alternative
strategies, such as selling assets, refinancing or restructuring our
indebtedness or selling additional equity capital. However, we cannot assure you
that any alternative strategies will be feasible at the time or prove adequate.
Also, certain alternative strategies would require the consent of our senior
secured lenders before we engage in any such strategy. Please refer to the
sections in this prospectus entitled "Description of Other Material Agreements"
and "Description of the Notes."
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO A
SIGNIFICANT PORTION OF OUR GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY ALL OF
OUR FUTURE BORROWINGS. FURTHER, THE CLAIMS OF CREDITORS OF OUR NON-GUARANTOR
SUBSIDIARIES WILL HAVE PRIORITY WITH RESPECT TO THE ASSETS AND EARNINGS OF SUCH
SUBSIDIARIES OVER YOUR CLAIMS.
The notes and the Subsidiary Guaranties will be subordinated to the prior
payment in full of our and the Subsidiary Guarantors' (as defined in
"Description of the Notes--Certain Definitions") current and future Senior
Indebtedness. As of June 30, 1999, we had $73.0 million outstanding under our
new credit facility and the Subsidiary Guarantors had $73.0 million of Senior
Indebtedness (consisting solely of their Senior Guaranty of our obligations
under the new credit facility). Because of the subordination provisions of the
notes, in the event of the bankruptcy, liquidation or dissolution of our company
or any subsidiary guarantor, our assets or the assets of the Subsidiary
Guarantors would be available to pay obligations under the notes only after all
payments had been made on our or the Subsidiary Guarantors' Senior Indebtedness.
We cannot assure you that sufficient assets will remain after all such payments
have been made to make any payments on the notes, including payments of interest
when due.
We conduct a portion of our business through our subsidiaries. Any future
domestic subsidiary that does not incur indebtedness and all of our foreign
subsidiaries will not be guaranteeing the notes. Claims of creditors or our
non-guarantor subsidiaries, including trade creditors, secured creditors and
creditors holding indebtedness or guaranties issued by such subsidiaries, will
generally have priority with respect to the assets and earnings of such
subsidiaries over the claims of creditors of our company, including holders of
the notes, even if the obligations of such subsidiaries do not constitute Senior
Indebtedness. As of June 30, 1999, after eliminating intercompany activity, our
subsidiaries that are not Subsidiary Guarantors would have 0.4% of our
consolidated liabilities and assets, respectively.
Please refer to the sections in this prospectus entitled "Description of the
Notes--Ranking" and "Description of the Notes--Certain Covenants--Limitations on
Indebtedness."
RESTRICTIVE DEBT COVENANTS--THE TERMS OF OUR NEW CREDIT FACILITY AND THE
INDENTURE IMPOSE SIGNIFICANT RESTRICTIONS ON OUR ABILITY AND THAT OF OUR
SUBSIDIARIES TO TAKE CERTAIN ACTIONS, WHICH MAY HAVE AN IMPACT ON OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The indenture and our new credit facility will impose significant operating
and financial restrictions on us and our subsidiaries and require us to meet
certain financial tests. These restrictions may significantly limit or prohibit
us from engaging in certain transactions, including the following:
- incurring or guaranteeing additional indebtedness;
- paying dividends or other distributions to our stockholders or redeeming,
repurchasing or retiring our capital stock or subordinated obligations;
- making investments;
- creating liens on our assets;
- issuing or selling capital stock of our subsidiaries;
- transforming or selling assets currently held by us;
- engaging in transactions with affiliates; and
- engaging in mergers or consolidations.
16
<PAGE>
The failure to comply with any of these covenants would cause a default
under the indenture and our other debt agreements. A default, if not waived,
could result in acceleration of our indebtedness, in which case the debt would
become immediately due and payable. If this occurs, we may not be able to repay
our debt or borrow sufficient funds to refinance it. Even if new financing is
available, it may not be on terms that are acceptable to us. Complying with
these covenants may cause us to take actions that are not favorable to holders
of the notes. Please refer to the sections in this prospectus entitled
"Description of Other Material Agreements" and "Description of the
Notes--Certain Covenants".
LIMITATIONS ON SUBSIDIARY GUARANTIES--THE GUARANTIES PROVIDED BY OUR
SUBSIDIARIES ARE SUBJECT TO CERTAIN DEFENSES WHICH MAY LIMIT YOUR RIGHT TO
RECEIVE PAYMENT ON THE NOTES AND ARE SUBORDINATED TO THE RIGHTS OF OTHER
CREDITORS OF SUCH SUBSIDIARY GUARANTORS.
Although the Subsidiary Guaranties provide the holders of the notes with a
direct claim against the assets of the Subsidiary Guarantors, enforcement of the
Subsidiary Guaranties against any Subsidiary Guarantor would be subject to
certain "suretyship" defenses available to guarantors generally. Enforcement
could also be subject to other defenses available to the Subsidiary Guarantors
in some circumstances. Please refer to the section in this prospectus entitled
"--Fraudulent Conveyance Matters." To the extent that the Subsidiary Guaranties
are not enforceable, the notes and Subsidiary Guaranties would be effectively
subordinated to all liabilities of the Subsidiary Guarantors, including trade
payables of such Subsidiary Guarantors, whether or not such liabilities
otherwise would constitute Senior Indebtedness under the indenture. In addition,
the payment of dividends to us by our subsidiaries is contingent upon the
earnings of those subsidiaries and approval of those subsidiaries.
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS,
UNDER SPECIFIC CIRCUMSTANCES, TO VOID THE NOTES AND THE SUBSIDIARY GUARANTIES
AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM ANTEON OR THE
SUBSIDIARY GUARANTORS.
An unpaid creditor or representative of creditors, such as a trustee in
bankruptcy or Anteon as a debtor-in-possession in a bankruptcy proceeding, could
file a lawsuit claiming that the issuance of the notes constituted a "fraudulent
conveyance." To make such a determination, a court would have to find that we
did not receive fair consideration or reasonably equivalent value for the notes,
and that, at the time the notes were issued, we:
- were insolvent;
- were rendered insolvent by the issuance of the notes;
- were engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they matured.
If a court were to make such a finding, it could void our obligations under
the notes, subordinate the notes to our other indebtedness or take other actions
detrimental to you as a holder of the notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property, or if the present
fair saleable value of that company's assets is less than the amount that will
be required to pay its probable liability on its existing debts as they mature.
Moreover, regardless of solvency, a court could void an incurrence of
indebtedness, including the notes, if it determined that the transaction was
made with intent to hinder, delay or defraud creditors, or a court could
subordinate the indebtedness, including the notes, to the claims of all existing
and future creditors on similar grounds. We cannot determine in advance what
standard a court would apply to determine whether we were "insolvent" in
connection with the sale of the notes.
17
<PAGE>
The making of the Subsidiary Guaranties might also be subject to similar
review under relevant fraudulent conveyance laws if a bankruptcy, reorganization
or rehabilitation case or a lawsuit (including circumstances in which bankruptcy
is not involved) were commenced by, or on behalf of, unpaid creditors of the
Subsidiary Guarantors at some future date. A court could impose legal and
equitable remedies, including subordinating the obligations under the subsidiary
guaranties, directing the repayment of any amounts paid from the proceeds of the
Subsidiary Guaranties to a fund for the benefit of other creditors or taking
other actions detrimental to you as a holder of the notes.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
If a Change of Control (as defined in "Description of the Notes--Certain
Definitions") occurs, you have the right to require us to repurchase any or all
of the notes you own at a price equal to 101% of the principal amount thereof,
together with any interest we owe you. Upon a Change of Control, we may be
required immediately to repay the outstanding principal, any accrued interest on
the notes, any amounts owed by us under our new credit facility and other
indebtedness or preferred stock then outstanding. We cannot assure you that we
would be able to repay the amounts outstanding under our new credit facility or
the principal amount outstanding of our other indebtedness or shares of our
preferred stock, if applicable, or to obtain the necessary consents to purchase
the notes. Any requirement to offer to purchase any outstanding notes may result
in our having to refinance our outstanding indebtedness, which we may not be
able to do. In addition, even if we were able to refinance such indebtedness,
such financing may be on terms unfavorable to us. If we fail to repurchase all
of the notes tendered for purchase upon the occurrence of a Change of Control,
such failure will be an event of default under the indenture and under our new
credit facility.
NO PRIOR MARKET FOR THE EXCHANGE NOTES--AN ACTIVE TRADING MARKET MAY NOT
DEVELOP FOR THE EXCHANGE NOTES.
The exchange notes will be registered under the Securities Act but will not
be eligible for trading on the Private Offerings, Resales and Trading through
Automated Linkages market. The exchange notes will constitute a new issue of
securities with no established trading market, and there can be no assurance as
to:
- the development of any market for the exchange notes,
- the liquidity of any market for the exchange notes that may develop,
- your ability to sell your exchange notes, or
- the price at which would be able to sell your exchange notes.
We have been advised by the initial purchasers for the initial notes that
they presently intend to make a market in the exchange notes. However, they are
not obligated to do so and may discontinue any market-making activity with
respect to the exchange notes at any time without notice. If a market for the
exchange notes were to exist, the exchange notes could trade at prices that may
be higher or lower than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar
debentures and the financial performance of Anteon and A&T. Historically, the
market for non-investment grade debt has been subject to disruptions that have
caused substantial volatility in the prices of securities similar to the
exchange notes. We cannot assure you that the market for the exchange notes, if
any, will not be subject to similar disruptions. Any disruption may adversely
affect you as a holder of the exchange notes.
ISSUANCE OF THE EXCHANGE NOTES -- THE ISSUANCE OF THE EXCHANGE NOTES MAY
ADVERSELY AFFECT THE MARKET FOR THE INITIAL NOTES.
Following commencement of the exchange offer, you may continue to trade the
initial notes in the Private Offerings, Resales and Trading through Automated
Linkages market. If initial notes are tendered for exchange and accepted in the
exchange offer, the trading market for the untendered and tendered but
unaccepted initial notes could be adversely affected.
18
<PAGE>
FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER -- YOUR FAILURE TO PARTICIPATE
IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES.
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes pursuant to the exchange offer, or if you do not properly tender
your initial notes in the exchange offer, you will not be able to resell, offer
to resell or otherwise transfer the initial notes unless they are registered
under the Securities Act. In addition, you will no longer be able to obligate us
to register the initial notes under the Securities Act except in the limited
circumstances provided under our registration rights agreement.
DELIVERY OF A PROSPECTUS -- CERTAIN PERSONS WHO PARTICIPATE IN THE EXCHANGE
OFFER MUST DELIVER A PROSPECTUS IN CONNECTION WITH RESALES OF THE EXCHANGE
NOTES.
Based on certain no-action letters issued by the staff of the Securities and
Exchange Commission, we believe that you may offer for resale, resell or
otherwise transfer the exchange notes without compliance with the registration
and prospectus delivery requirements of the Securities Act. However, in some
instances described in this prospectus under "The Exchange Offer," you will
remain obligated to comply with the registration and prospectus delivery
requirements of the Securities Act to transfer your exchange notes. In these
cases, if you transfer an exchange note without delivering a prospectus meeting
the requirements of the Securities Act or without an exemption from registration
of your exchange notes under this Act, you may incur liability under the
Securities Act. We do not and will not assume or indemnify you against this
liability.
RISKS ASSOCIATED WITH FEDERAL GOVERNMENT CONTRACTING
FEDERAL GOVERNMENT CONTRACTING RISKS--OUR BUSINESS COULD BE ADVERSELY
AFFECTED IF THERE WERE ANY SIGNIFICANT CHANGES IN THE CONTRACTING POLICIES OR
FISCAL POLICIES OF THE U.S. FEDERAL GOVERNMENT.
We derive substantially all of our revenues from contracts with the U.S.
Federal government or subcontracts under Federal government prime contracts, and
we believe that the success and development of our business will continue to
depend on our successful participation in Federal government contract programs.
Accordingly, changes in Federal government contracting policies could directly
affect our financial performance. Among the factors that could materially
adversely affect our Federal government contracting business are:
- budgetary constraints affecting Federal government spending generally, or
specific departments or agencies in particular, and changes in fiscal
policies or available funding;
- changes in Federal government programs or requirements;
- curtailment of the Federal government's use of technology services firms;
- the adoption of new laws or regulations;
- technological developments;
- Federal governmental shutdowns (such as that which occurred during the
Federal government's 1996 fiscal year);
- competition and consolidation in the information technology industry; and
- general economic conditions.
These or other factors could cause Federal governmental agencies to reduce their
purchases under contracts, to exercise their right to terminate contracts or not
to exercise options to renew contracts, any of which could have a material
adverse effect on our financial condition, results of operations and debt
service capability.
19
<PAGE>
Many of our Federal government customers are subject to increasingly
stringent budgetary constraints. We have substantial contracts in place with
many Federal departments and agencies, and our continued performance under these
contracts, or award of additional contracts from these agencies, could be
materially adversely affected by spending reductions or budget cutbacks at these
agencies. Please refer to the section in this prospectus entitled "Overview of
Federal Government Contracting." Such reductions or cutbacks could have a
material adverse effect on our financial condition, results of operations and
debt service capability.
EARLY TERMINATION OF CONTRACTS--WE ARE NOT ABLE TO GUARANTEE THAT OUR
CONTRACTS WITH THE U.S. FEDERAL GOVERNMENT AND SUBCONTRACTS UNDER FEDERAL
GOVERNMENT PRIME CONTRACTS WILL NOT BE TERMINATED PRIOR TO THEIR COMPLETION AND
THERE IS NO GUARANTEE THAT WE WILL RETAIN THESE CONTRACTS IN ANY COMPETITIVE
REBIDDING PROCESS.
We derive substantially all of our revenues from U.S. Federal government
contracts and subcontracts under Federal government prime contracts that
typically span one or more base years and one or more option years and are
awarded through formal competitive bidding processes. Many of the option periods
cover more than half of the contract's potential duration. Federal government
agencies generally have the right not to exercise these option periods. In
addition, our contracts typically also contain provisions permitting a
government client to terminate the contract on short notice, with or without
cause. A decision not to exercise option periods or to terminate contracts would
reduce the profitability of these contracts to us. Our contractual costs and
revenues are subject to adjustment as a result of Federal government audits.
Please refer to the section in this prospectus entitled "--Contracts Subject to
Audit."
Upon expiration, if the customer requires further services of the type
provided in the contract, there is frequently a competitive rebidding process,
and there can be no assurance that we will win any particular bid, or that we
will be able to replace business lost upon expiration or completion of a
contract. Further, all Federal government contracts are subject to protest by
competitors. The unexpected termination of one or more of our significant
contracts could result in significant revenue shortfalls. The termination or
nonrenewal of any of our significant contracts, short-term revenue shortfalls,
the imposition of fines or damages or our suspension or debarment from bidding
on additional contracts could have a material adverse effect on our financial
condition, results of operations and debt service capability. For a description
of some of our material contracts, please refer to the sections in this
prospectus entitled "Business-- Anteon Divisions" and "Business--A&T Divisions."
CONTRACTS SUBJECT TO AUDIT--OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A
NEGATIVE AUDIT BY THE DEFENSE CONTRACT AUDIT AGENCY. WE COULD BE REQUIRED TO
REIMBURSE THE U.S. FEDERAL GOVERNMENT FOR COSTS THAT WE HAVE EXPENDED ON OUR
CONTRACTS AND OUR ABILITY TO COMPETE SUCCESSFULLY FOR FUTURE CONTRACTS COULD BE
MATERIALLY IMPAIRED.
The Defense Contract Audit Agency, which we refer to as "DCAA" and certain
other government agencies, routinely audit and investigate government contracts.
These agencies review a contractor's performance on its contract, pricing
practices, cost structure and compliance with applicable laws, regulations and
standards. Any costs found to be improperly allocated to a specific contract
will not be reimbursed, while costs already reimbursed must be refunded.
Therefore, a DCAA audit could result in a substantial adjustment to our
revenues. No material adjustments have resulted from any DCAA audits of us
completed as of December 31, 1996, and we believe that adjustments resulting
from subsequent audits will not adversely affect our business. If a government
audit uncovers improper or illegal activities, we may be subject to civil and
criminal penalties and administrative sanctions, including termination of
contracts, forfeitures of profits, suspension of payments, fines and suspension
or debarment from doing business with the Federal government. In addition, we
could suffer serious reputational harm if allegations of impropriety were made
against us. Any such government determination of impropriety or illegality, or
allegation of impropriety, could have a material adverse effect on our financial
condition, results of operations and debt service capabilities.
20
<PAGE>
RISKS UNDER IDIQ CONTRACTS AND GSA SCHEDULE CONTRACT VEHICLES--MANY OF OUR
U.S. FEDERAL GOVERNMENT CUSTOMERS SPEND THEIR PROCUREMENT BUDGETS THROUGH GSA
SCHEDULE CONTRACTS AND WE ARE REQUIRED TO COMPETE FOR POST-AWARD ORDERS.
Budgetary pressures and reforms in the procurement process have caused many
U.S. Federal government customers to increasingly purchase goods and services
through "indefinite delivery, indefinite quantity", which we refer to as "IDIQ",
contracts, General Service Administration, which we refer to as "GSA", Schedule
contracts and other multiple award and/or government-wide acquisition contract
vehicles. These contract vehicles have resulted in increased competition and
pricing pressure requiring that we make sustained post-award efforts to realize
revenues under the relevant contract. There can be no assurance that we will
continue to increase revenues or otherwise sell successfully under these
contract vehicles. Our failure to compete effectively in this procurement
environment could have a material adverse effect on our financial condition,
results of operations and debt service capability. For a description of some of
our material contracts, please refer to the sections in this prospectus entitled
"Business--Anteon Divisions" and "Business--A&T Divisions."
RISK FACTORS RELATING TO THE INDUSTRY
GOVERNMENT REGULATIONS--WE MAY BE LIABLE FOR PENALTIES UNDER A VARIETY OF
PROCUREMENT RULES AND REGULATIONS. CHANGES IN GOVERNMENT REGULATIONS COULD
ADVERSELY AFFECT OUR BUSINESS.
Our defense and commercial businesses must comply with and are affected by
various government regulations. Among the most significant regulations are the
Federal Acquisition Regulations, which comprehensively regulate the formation,
administration and performance of government contracts; the Truth in
Negotiations Act, which requires certification and disclosure of all cost and
pricing data in connection with contract negotiations; the Cost Accounting
Standards, which impose accounting requirements that govern our right to
reimbursement under certain cost-based government contracts; and laws,
regulations and Executive Orders restricting the use and dissemination of
information classified for national security purposes and the exportation of
certain products and technical data. These regulations affect how our customers
and we can do business and, in some instances, impose added costs on our
businesses. Any changes in applicable laws could adversely affect the financial
performance of the business affected by the changed regulations. Any failure to
comply with applicable laws could result in contract termination, price or fee
reductions or suspension or debarment from contracting with the Federal
government.
RISKS RELATING TO FURTHER REDUCTIONS OR CHANGES IN MILITARY EXPENDITURES--A
DECLINE IN THE U.S. DEFENSE BUDGET MAY ADVERSELY AFFECT OUR OPERATIONS.
Sales under contracts with the U.S. Government's Department of Defense,
including under subcontracts that identified the Department of Defense as the
ultimate purchaser, represented approximately 34% of our sales in 1998. The U.S.
defense budget has generally declined since the mid-1980s, resulting in a
slowing of new program starts, program delays and program cancellations. This
reduction in the U.S. defense budget has caused most defense-related government
contractors to experience declining revenues, increased pressure on operating
margins and, in some cases, net losses.
The loss or significant curtailment of our material U.S. or international
military contracts or the failure to renew or replace material contracts upon
expiration or completion or a general significant decline in military
expenditures, could materially and adversely affect our financial condition,
results of operations and debt service capability.
RISK FACTORS RELATING TO ANTEON AND A&T
BACKLOG--WE ARE NOT ABLE TO GUARANTEE THAT CONTRACT ORDERS IN OUR OR A&T'S
BACKLOG WILL RESULT IN ACTUAL REVENUES IN ANY PARTICULAR FISCAL PERIOD.
21
<PAGE>
There can be no assurance that our or A&T's backlog will result in actual
revenues in any particular period or at all. Further, there can be no assurance
that any contract included in backlog that generates revenue will be profitable.
Our backlog consists of "funded" backlog which is based upon amounts actually
appropriated by a customer for payment of goods and services and "unfunded"
backlog which is based upon management's estimate of the future potential of our
existing contracts to generate revenues for us. These estimates are based on our
experience under such contracts and similar contracts, and management believes
such estimates to be reasonable. However, there can be no assurances that all of
such backlog will be recognized as revenue.
In addition, the Federal government's ability to select multiple winners
under IDIQ contracts, as well as its right to award subsequent task orders to
any particular awardee, means that there is no assurance that unfunded contract
backlog will result in actual orders. Further, the Federal government enjoys
broad rights to unilaterally modify or terminate such contracts. Accordingly,
most of our and A&T's backlog is subject to modification and termination at the
Federal government's discretion. In addition, funding for orders from the
Federal government is subject to approval on an annual basis by Congress
pursuant to the appropriations process.
RELIANCE ON SUBCONTRACTORS--WE REGULARLY EMPLOY SUBCONTRACTORS TO ASSIST US
IN SATISFYING OUR CONTRACTUAL OBLIGATIONS. IF THESE SUBCONTRACTORS FAIL TO
PERFORM THEIR CONTRACTUAL OBLIGATIONS, OUR PRIME CONTRACT PERFORMANCE AND OUR
ABILITY TO OBTAIN FUTURE BUSINESS COULD BE MATERIALLY AND ADVERSELY IMPACTED.
Our performance of government contracts may involve the issuance of
subcontracts to other companies upon which we rely to perform all or a portion
of the work we are obligated to deliver to our customers. A failure by one or
more of our subcontractors to satisfactorily deliver on a timely basis the
agreed-upon supplies and/or perform the agreed-upon services may materially and
adversely impact our ability to perform our obligations as a prime contractor.
In extreme cases, such subcontractor performance deficiencies could result in
the government terminating Anteon's contract for default. A default termination
could expose Anteon to liability for excess costs of reprocurement by the
government and have a material adverse effect on our ability to compete for
future contracts and task orders.
DEPENDENCE ON KEY TECHNICAL PERSONNEL--IF WE LOSE OUR TECHNICAL PERSONNEL,
OUR BUSINESS MAY BE ADVERSELY AFFECTED.
Our continued success depends in large part on our ability to recruit and
retain the technical personnel necessary to serve our clients effectively.
Competition for skilled personnel in the information technology and engineering
services industry is intense, and technology service companies often experience
high attrition among their skilled employees. Excessive attrition among our
technical personnel could increase our costs of performing our contractual
obligations, reduce our ability to efficiently satisfy our clients' needs and
constrain our future growth. In addition, we must often comply with provisions
in Federal government contracts that require employment of persons with
specified levels of education, work experience and security clearances. The loss
of any significant number of our existing key technical personnel or the
inability to attract and retain key employees in the future could have a
material adverse effect on our ability to win new business as well as our
financial condition, results of operations and debt service capability. Please
refer to the sections in this prospectus entitled "Business--Employees" and
"Management."
ACQUISITION STRATEGY--WE INTEND TO PURSUE FUTURE ACQUISITIONS AND ARE
CURRENTLY CONSIDERING SPECIFIC ACQUISITIONS WHICH MAY ADVERSELY AFFECT OUR
BUSINESS IF WE CANNOT EFFECTIVELY INTEGRATE THESE NEW OPERATIONS.
Our continued success will depend upon our ability to integrate Vector Data
Systems, Inc., Tech-matics, A&T and any businesses we may acquire in the future.
The integration of such businesses into our operations may require a
disproportionate amount of management's attention and our resources. There can
be no assurance that the acquired entities will operate profitably, that we will
realize anticipated synergies or that acquisitions will cause our operating
performance to improve.
22
<PAGE>
Although management regularly engages in discussions with and submits
acquisition proposals to acquisition targets, there can be no assurance that
suitable acquisition targets will be available in the future on reasonable
terms. In addition, to the extent that we complete any additional acquisitions,
no assurance can be given that acquisition financing will be available on
reasonable terms or at all, that any new businesses will generate revenues or
net income comparable to our existing businesses or that such businesses will be
integrated successfully or operated profitably. In addition, the new credit
facility contains certain covenants restricting, among other things,
acquisitions and capital expenditures, and the new credit facility and the
indenture limit the incurrence of additional indebtedness. Such covenants may
further limit our ability to complete additional acquisitions.
POTENTIAL UNDISCLOSED LIABILITIES ASSOCIATED WITH ACQUISITIONS--WE MAY BE
SUBJECT TO CERTAIN LIABILITIES ASSUMED IN CONNECTION WITH OUR ACQUISITIONS THAT
COULD ADVERSELY AFFECT OUR BUSINESS.
We conduct due diligence in connection with each of our acquisitions. In
connection with our acquisition of A&T, or any other acquisition made by us,
there may be liabilities that we fail to discover or that we inadequately assess
in our due diligence efforts. In particular, to the extent that prior owners of
any acquired businesses failed to comply with or otherwise violated procurement
requirements or applicable laws, Anteon, as the successor owner, may be
financially responsible for these violations or otherwise be adversely affected.
The discovery of any material liabilities could have a material adverse effect
on our financial condition, results of operations and debt service capability.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS--OUR INTERNATIONAL BUSINESS
EXPOSES US TO ADDITIONAL RISKS INCLUDING EXCHANGE RATE FLUCTUATIONS, FOREIGN TAX
AND LEGAL REGULATIONS AND POLITICAL OR ECONOMIC INSTABILITY THAT COULD ADVERSELY
AFFECT OUR BUSINESS.
In connection with our international operations, which generated less than
5% of our 1998 revenues, we are subject to risks associated with operating in
and selling to foreign countries, including:
- devaluations and fluctuations in currency exchange rates;
- changes in or interpretations of foreign regulations that may adversely
affect our ability to sell all of our products or repatriate profits to
the United States;
- imposition of limitations on conversions of foreign currencies into
dollars;
- imposition of limitations on or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries or joint ventures;
- hyperinflation or political instability in foreign countries;
- imposition or increase of investment and other restrictions or
requirements by foreign governments; and
- U.S. arms export control regulations and policies which govern our ability
to supply foreign affiliates and customers.
To the extent we expand our international operations, these and other risks
associated with international operations are likely to increase. Although such
risks have not had a material adverse effect on our financial condition, results
of operations or debt service capability in the past, no assurance can be given
that such risks will not have such an adverse effect on us in the future.
CONCENTRATION OF OWNERSHIP--WE WILL BE CONTROLLED BY ENTITIES UNDER THE
CONTROL OF MR. ISEMAN, WHOSE INTERESTS MAY NOT BE ALIGNED WITH YOURS.
Affiliates of Caxton-Iseman Capital which are controlled by Mr. Frederick J.
Iseman beneficially own more than 99% of our capital stock. Consequently, Mr.
Iseman can control the election of our directors and the outcome of all matters
submitted to a vote of our shareholders, as well as our management, operations
and policies. Mr. Iseman's interests may not be fully aligned with yours and
this could lead to a strategy that is not in your best interests.
23
<PAGE>
RISKS ASSOCIATED WITH "YEAR 2000" PROBLEM
We are dependent on business systems, which include our information
technology systems and non-information technology devices with embedded
microprocessors in operating our business. We also depend on the proper
functioning of business systems of third parties, such as our vendors and
customers. The failure of any of these systems to appropriately interpret the
upcoming calendar year 2000 could have a material adverse effect on our
financial condition, results of operations, debt service capability, cash flow
and business prospects.
During fiscal 1998 we implemented a plan which prepared our systems to be
Year 2000 compliant. We have completed our inventory phase and, based on this
analysis, we believe that our systems and applications will not be adversely
affected by any Year 2000 issues. Our aggregate costs incurred in 1998 to assess
our Year 2000 readiness were not material and management expects that any future
expenditures in 1999 will be similarly immaterial. However, we cannot assure you
that this estimate will be correct.
In addition, we have addressed the Year 2000 issue with our significant
third-party suppliers and customers through inclusion of appropriate contractual
provisions in our business dealings with such companies to ensure their Year
2000 readiness. Management has no reason to believe that any such companies will
encounter Year 2000 issues. However, we cannot assure you that they will be
successful in avoiding any Year 2000 issues or resolving them in a timely
manner, or that any failure to do so would not materially and adversely affect
our business.
Our inability to remedy our own Year 2000 problems or the failure of third
parties to do so may cause business interruptions or shutdown and result in
financial loss, regulatory actions, reputational harm and/or legal liability.
24
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the outstanding initial notes. We are making this exchange
solely to satisfy our obligations under our registration rights agreement. In
consideration for issuing the exchange notes, we will receive initial notes in
like aggregate accreted value equal to the accreted value of the exchange notes.
The following table sets forth sources and uses of funds in connection with
the Transactions:
<TABLE>
<CAPTION>
AMOUNT
SOURCES USES -------------
- ------------------------------------- ------------------------------------- (IN
AMOUNT THOUSANDS)
-------------
(IN
THOUSANDS)
<S> <C> <C> <C>
New Credit Facility:
Revolving Credit Facility.......... $ 13,000 Acquisition of A&T................... $ 108,800
Term Loan Facility................. 60,000 Repayment of Anteon debt............. 76,200
Initial Notes........................ 100,000 Repayment of A&T debt................ 3,200
Equity Contribution.................. 22,500 Estimated fees and expenses.......... 11,600
Existing cash........................ 4,300
------------- -------------
Total Sources...................... $ 199,800 Total Uses........................... $ 199,800
------------- -------------
------------- -------------
</TABLE>
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Anteon at June 30,
1999. Each of the Transactions were consummated prior to June 30, 1999 and are
reflected in the amounts in the table. You should read this table in conjunction
with the information in the sections entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Anteon Corporation,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Analysis & Technology, Inc." and the historical consolidated
financial statements of Anteon and A&T, together with the respective exchange
notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
-------------
<S> <C>
(IN
THOUSANDS)
Total debt:
New credit facility:
Revolving credit facility...................................................................... $ 13,000
Term loan facility............................................................................. 60,000
12% Senior Subordinated Notes Due 2009........................................................... 100,000
Subordinated notes payable for Techmatics acquisition............................................ 8,648
Mortgage long-term debt.......................................................................... 2,076
-------------
Total debt................................................................................... $ 183,724
-------------
Stockholders' equity:
Common stock, $0.05 par value, 4,415,460 shares authorized; 3,557,672 shares issued and
outstanding.................................................................................... 178
Additional paid-in capital....................................................................... 40,751
Accumulated other comprehensive income........................................................... 1,970
Retained earnings................................................................................ 5,183
-------------
Total stockholders' equity................................................................... 48,082
-------------
Total capitalization....................................................................... $ 231,806
-------------
-------------
</TABLE>
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<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data is
based on the historical consolidated financial statements of Anteon, A&T and
Techmatics, adjusted to give effect to (1) the acquisition of Techmatics, (2)
the acquisition of A&T, (3) the offering of the initial notes, (4) the receipt
of the equity contribution, (5) the initial borrowings under the new credit
facility, (6) the repayment of all the amounts outstanding under the existing
credit facility and the repayment of all the outstanding indebtedness of A&T.
The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1998 and the six months ended June 30, 1999 give
effect to the Transactions as if they were completed as of January 1, 1998 and
combine Anteon's and A&T's statements of income for the year ended December 31,
1998 and the six months ended June 30, 1999, and the results of operations of
Techmatics for the period from January 1, 1998 to May 29, 1998. The Techmatics
acquisition was effective as of May 29, 1998 and is reflected in the historical
balance sheet of Anteon as of June 30, 1999 and Anteon's historical statements
of income for the period from May 29, 1998 to December 31, 1998, and for the six
months ended June 30, 1999.
The acquisition of A&T has been accounted for using the purchase method of
accounting. The purchase method of accounting allocates the aggregate purchase
price to the identifiable tangible and intangible assets acquired and
liabilities assumed based upon their respective estimated fair market values as
of the assumed date of combination. These estimates were based on preliminary
appraisals and other studies that will be completed during the remainder of
1999. The estimates of fair market value in the final allocation of the purchase
price may differ from those presented in the accompanying unaudited pro forma
condensed consolidated financial data.
The unaudited pro forma condensed consolidated financial data does not
include certain cost savings related to the acquisition of A&T that we expect to
realize in connection with the acquisition or the costs of achieving such cost
savings. Such pro forma cost savings also do not reflect certain other cost
savings related to previous acquisitions or the costs of achieving such cost
savings. Management believes that additional cost savings will be generated
through reduced general and administrative expenses and the allocation of a
portion of Anteon's home office expenses to A&T. A significant portion of such
allocated home office expenses will be recovered through A&T's cost-plus
contracts which provide for reimbursement of a portion of A&T's indirect costs.
Management estimates that such cost savings will be approximately $3.7 million
annually before income taxes; however, there can be no assurance that such cost
savings will be achieved in the amounts expected or at all. These estimated
savings are not reflected in the pro forma data.
The method of combining historical financial statements for the preparation
of the pro forma condensed consolidated financial data is for presentation only.
Actual statements of operations of Anteon will reflect the operating results of
both Anteon and A&T from the closing date of the acquisition with no retroactive
restatements. The unaudited pro forma condensed consolidated financial data is
provided for illustrative purposes only and does not purport to be indicative of
the financial condition or results of operations that would have been reported
had the Transactions occurred on the dates indicated, nor does it represent a
forecast of the consolidated financial position or results of operations for any
future period. The unaudited pro forma condensed consolidated financial data
should be read in conjunction with the historical financial statements, together
with the respective notes thereto, for Anteon, A&T and Techmatics, included
elsewhere in this prospectus.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS
HISTORICAL HISTORICAL THE TECHMATICS PRO FORMA HISTORICAL FOR THE
ANTEON TECHMATICS(A) ACQUISITION ANTEON A&T(B) TRANSACTIONS PRO FORMA
---------- ------------- --------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue......................... $ 249,776 $ 32,763 $ 282,539 $ 168,247 $ 450,786
Cost of revenues................ 221,588 28,639 250,227 143,429 393,656
---------- ------------- ---------- ---------- ----------
Gross profit.................... 28,188 4,124 32,312 24,818 57,130
General and administrative
expenses...................... 15,286 1,883 17,169 14,917 (568) (c) 31,518
Amortization of non-compete
agreements.................... 530 -- 379(d) 909 -- 909
Goodwill amortization........... 1,814 -- 372(d) 2,186 944 1,839(e) 4,969
Other........................... 115 -- 115 242 357
---------- ------------- ---------- ---------- ----------
Operating income................ 10,443 2,241 11,933 8,715 19,377
Interest expense, net........... 5,597 74 5,671 357 16,518(f) 22,546
Minority interest in earnings of
subsidiary.................... 25 -- 25 -- 25
---------- ------------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes.... 4,821 2,167 6,237 8,358 (3,194)
Income tax expense (benefit).... 2,353 -- 275(g) 2,628 3,689 (6,326)(g) (9)
---------- ------------- ---------- ---------- ----------
Net income (loss)............... $ 2,468 $ 2,167 $ 3,609 $ 4,669 $ (3,185)
---------- ------------- ---------- ---------- ----------
---------- ------------- ---------- ---------- ----------
EBITDA(i)....................... $ 15,988 $ 18,772 $ 31,437
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
28
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL HISTORICAL FOR THE
ANTEON A&T(B) TRANSACTIONS PRO FORMA
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Revenue............................................................ $ 145,609 $ 90,097 $ 235,706
Cost of revenues................................................... 128,576 76,444 205,020
---------- ---------- ----------
Gross profit....................................................... 17,033 13,653 30,686
General and administrative expenses................................ 8,907 7,312 (292)(c) 15,927
Amortization of non-compete agreements............................. 454 -- 454
Goodwill amortization.............................................. 1,024 579 813(e) 2,416
Other.............................................................. -- 638 638
---------- ---------- ----------
Operating income................................................... 6,648 5,124 11,251
Interest expense, net.............................................. 5,500 93 5,860(f) 11,453
Minority interest in earnings of subsidiary........................ 17 -- 17
---------- ---------- ----------
Income (loss) before provision (benefit) for income taxes.......... 1,131 5,031 (219)
Income tax expense (benefit)....................................... 399 2,240 (2,092)(g) 547
---------- ---------- ----------
Net income (loss)(h)............................................... $ 732 2,791 $ (766)
---------- ---------- ----------
---------- ---------- ----------
EBITDA(i).......................................................... $ 9,393 $ 16,530
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The following adjustments have been reflected in the Unaudited Pro Forma
Condensed Consolidated Statements of Operations:
(a) To reflect the historical results of operations of Techmatics for the period
January 1, 1998 to May 29, 1998. The Techmatics acquisition was effective as
of May 29, 1998 and is reflected in Anteon's historical statements of income
for the periods from May 29, 1998 to December 31, 1998, and January 1, 1999
to June 30, 1999.
(b) To reflect the historical results of operations of A&T.
(c) To reflect cost savings associated with the elimination of general and
administrative expenses of A&T operating as a public company, including fees
payable to the board of directors of A&T.
(d) To reflect incremental amortization of goodwill and non-compete agreements
resulting from the Techmatics acquisition for the period January 1, 1998 to
May 29, 1998.
(e) To reflect the amortization of goodwill of $83,490 from the acquisition of
A&T, determined as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -----------------
<S> <C> <C>
Amortization expense from the acquisition............... $ 2,783 $ 1,392
Elimination of historical A&T goodwill.................. (944) (579)
------ ------
Pro forma adjustment to goodwill amortization
expense............................................. $ 1,839 $ 813
------ ------
------ ------
</TABLE>
The acquisition was accounted for using the purchase method whereby the net
tangible and identifiable intangible assets acquired and liabilities assumed
were recognized at their estimated fair market values at the date of
combination. These estimates were based on preliminary appraisals and other
studies that will be completed during the remainder of 1999. Amortization
expense on the goodwill from the acquisition is being amortized on a
straight-line basis over 30 years.
(f) To reflect incremental interest expense associated with (1) the 12% Senior
Subordinated Notes Due 2009, (2) initial borrowings under the new credit
facility and (3) the amortization of deferred financing costs. Also reflects
the elimination of interest expense associated with the existing credit
facility. The components of pro forma interest expense for the year ended
December 31, 1998 and the six months ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
12% Senior Subordinated Notes Due 2009.................. $ 12,000 $ 6,000
Term Loan Facility...................................... 6,000 3,000
Revolving Credit Facility............................... 1,300 650
Techmatics subordinated notes payable................... 1,040 485
Amortization of deferred financing costs................ 1,780 1,217
Other................................................... 426 101
------- -------
Pro forma interest expense.............................. 22,546 11,453
Less historical interest expense........................ (6,028) (5,593)
------- -------
Pro forma adjustment to interest expense.............. $ 16,518 $ 5,860
------- -------
------- -------
</TABLE>
The interest rates used above are the interest rates that we estimate will
be applicable. The Term Loan Facility and the Revolving Credit Facility bear
interest at adjustable rates. An increase of 1/8% in the
30
<PAGE>
interest rate applicable to the Term Loan Facility or the Revolving Credit
Facility will result in pro forma interest expense and pro forma net loss
for the year ended December 31, 1998 and the six months ended June 30, 1999
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 SIX MONTHS ENDED JUNE 30, 1999
----------------------------------- -----------------------------------
REVOLVING REVOLVING
TERM LOAN CREDIT TERM LOAN CREDIT
FACILITY FACILITY TOTAL FACILITY FACILITY TOTAL
----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Pro forma interest expense...... $ 22,621 $ 22,562 $ 22,637 $ 11,491 $ 11,461 $ 11,499
----------- ----------- --------- ----------- ----------- ---------
----------- ----------- --------- ----------- ----------- ---------
Pro forma net loss.............. $ (3,230) $ (3,195) $ (3,240) $ (789) $ (771) $ (794)
----------- ----------- --------- ----------- ----------- ---------
----------- ----------- --------- ----------- ----------- ---------
</TABLE>
(g) To recognize Federal and state income taxes at a combined rate of 40%, after
adjusting income (loss) before taxes for non-deductibility of goodwill
amortization expense.
(h) The accompanying unaudited pro forma condensed consolidated statement of
operations for the six months ended June 30, 1999 excludes $772 ($463, net
of tax) of deferred financing costs associated with the existing credit
facility, which were written off upon early repayment of all the amounts
outstanding under such facility.
(i) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA also excludes infrequent and unusual charges of $0.1
million for the year ended December 31, 1998 relating to asset write-offs at
Techmatics, and $0.24 million for the six months ended June 30, 1999
relating to a settlement with a former executive. Management believes that
these charges will not recur and will not result in further cash charges.
EBITDA is presented because we believe that it is a widely accepted
supplemental indicator of an entity's ability to incur and service debt.
However, EBITDA should not be considered by an investor as an alternative to
net income or operating income as an indicator of our operating performance
or cash flow from operations, or as an alternative to cash flows as a
measure of liquidity.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA OF ANTEON CORPORATION
The following selected consolidated financial data has been derived from (1)
in the case of Anteon, its unaudited consolidated financial statements as of
June 30, 1999 and for the six months ended June 30, 1999 and 1998 and its
audited consolidated financial statements as of and for the years ended December
31, 1998 and 1997 and for the period from April 1, 1996 to December 31, 1996 and
(2) in the case of our Predecessor Company, its audited consolidated financial
statements for the period from January 1, 1996 to March 31, 1996, in each case
included elsewhere in this prospectus. The following selected consolidated
financial data as of December 31, 1996 of Anteon and as of and for the year
ended December 31, 1995 of our Predecessor Company is derived from audited
consolidated financial statements not included in this prospectus. Each of the
audited consolidated financial statements of Anteon and our Predecessor Company
have been audited by KPMG LLP, independent certified public accountants. The
following selected consolidated financial data as of and for the year ended
December 31, 1994 of our Predecessor Company is unaudited and has been prepared
on the same basis as the audited consolidated financial statements of our
Predecessor Company included elsewhere in this prospectus. In the opinion of
Anteon's management, the unaudited data reflects all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of such data.
These results are not necessarily indicative of the results that may be expected
for a complete year or for any future period and are not comparable to the prior
period as a result of business acquisitions consummated in 1997, 1998 and 1999.
Results of operations of these acquired businesses are included in Anteon's
consolidated financial statements for the periods subsequent to the respective
dates of acquisition. You should read this data in conjunction with
"Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Anteon Corporation," "Business" and the historical consolidated
financial statements of Anteon, together with the respective notes thereto,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
ANTEON
PREDECESSOR COMPANY(A) ---------------------------------------------------------
---------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 1,
1996 1996
YEAR ENDED TO MARCH TO DECEMBER YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 31, 31, DECEMBER 31, JUNE 30,
-------------------- ----------- ------------- -------------------- --------------------
1994 1995 1996 1996 1997(B) 1998(C) 1998(C) 1999(D)
--------- --------- ----------- ------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 78,154 $ 108,504 $ 32,046 $ 109,780 $ 176,292 $ 249,776 $ 108,196 145,609
Costs of revenues.............. 73,771 101,084 29,218 100,426 159,539 221,588 96,139 128,576
--------- --------- ----------- ------------- --------- --------- --------- ---------
Gross profit................... 4,383 7,420 2,828 9,354 16,753 28,188 12,057 17,033
General and administrative
expenses..................... 9,471 6,489 2,071 4,616 8,061 15,286 6,203 8,907
Amortization of non-compete
agreements (e)............... -- -- -- 1,714 2,286 530 76 454
Goodwill amortization.......... -- -- -- 346 742 1,814 751 1,024
Costs of acquisitions (f)...... -- -- -- -- 584 115 18 --
--------- --------- ----------- ------------- --------- --------- --------- ---------
Operating income (loss)........ (5,088) 931 757 2,678 5,080 10,443 5,009 6,648
Interest expense, net.......... 952 105 -- 1,455 2,365 5,597 1,736 5,500
Minority interest in earnings
of subsidiary................ -- -- -- -- 13 25 14 17
--------- --------- ----------- ------------- --------- --------- --------- ---------
Income (loss) before provision
for income taxes and
extraordinary item........... (6,040) 826 757 1,223 2,702 4,821 3,259 1,131
Income tax expense (benefit)... (2,416) 330 303 416 1,063 2,353 1,310 399
--------- --------- ----------- ------------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item........... $ (3,624) $ 496 $ 454 $ 807 $ 1,639 $ 2,468 $ 1,949 $ 732
Extraordinary item, net of
tax.......................... -- -- -- -- -- -- -- 463(g)
--------- --------- ----------- ------------- --------- --------- --------- ---------
Net income (loss).............. (3,624) 496 454 807 1,639 2,468 1,949 269
--------- --------- ----------- ------------- --------- --------- --------- ---------
--------- --------- ----------- ------------- --------- --------- --------- ---------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
ANTEON
PREDECESSOR COMPANY(A) ---------------------------------------------------------
---------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 1,
1996 1996
YEAR ENDED TO MARCH TO DECEMBER YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 31, 31, DECEMBER 31, JUNE 30,
-------------------- ----------- ------------- -------------------- --------------------
1994 1995 1996 1996 1997(B) 1998(C) 1998(C) 1999(D)
--------- --------- ----------- ------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (h)........... $ (4,426) $ 2,039 $ 1,143 $ 5,800 $ 9,583 $ 15,988 $ 6,694 $ 9,393
EBITDA margin........ (5.7)% 1.9% 3.6% 5.3% 5.4% 6.4% 6.2% 6.5%
Cash flow from (used
in) operating
activities......... $ 849 $ (8,119) $ 2,224 $ 7,519 $ 14,094 $ (8,340) $ (9,426) $ 5,677
Capital
expenditures....... 570 1,195 211 376 817 2,089 1,164 1,335
Ratio of earnings to
fixed charges
(i)................ -- 1.8x 4.5 x 1.6 x 1.8x 1.6x 2.3x 1.2x
Deficiency in
earnings to cover
fixed charges...... $ (6,040) -- -- -- -- -- -- --
BALANCE SHEET DATA
(AS OF DECEMBER
31):
Currents assets...... $ 32,135 $ 36,591 $ 42,394 $ 35,744 $ 73,556 $ 106,459
Working capital...... 22,223 23,859 23,397 11,767 34,161 43,602
Total assets......... 38,673 40,697 59,599 68,572 143,168 287,107
Net debt (j)......... -- -- 19,486 23,448 73,573 170,427
</TABLE>
- ------------------------
(a) Represents the results of operations and financial position of our
Predecessor Company prior to its acquisition by Anteon, effective April 1,
1996.
(b) Includes the results of operations of Vector Data from August 29, 1997, the
date of acquisition by Anteon.
(c) Includes the results of operations of Techmatics from May 29, 1998, the date
of acquisition by Anteon.
(d) The Company consummated the acquisition of A&T on June 23, 1999. The results
of operations of A&T were not significant for the period ended June 30, 1999
and are not included in Anteon's consolidated statements of operations for
the six months ended June 30, 1999. Balance sheet data as of June 30, 1999
reflects the acquisition of A&T.
(e) Non-compete agreements entered into by Anteon in connection with purchase
business combinations are amortized on a straight-line basis over the terms
of such non-compete agreements.
(f) Costs incurred on successful acquisitions are capitalized as a cost of the
acquisition, while costs incurred by Anteon in connection with proposed
acquisitions that were unsuccessful or discontinued are expensed as
incurred.
(g) Represents the write-off of $772 of deferred financing fees, net of income
taxes of $309, related to the existing credit facility which was repaid
early in conjunction with the Transactions.
(h) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA also excludes infrequent and unusual charges of $0.1
million for the year ended December 31, 1998 relating to asset write-offs at
Techmatics, and $0.24 million for the six months ended June 30, 1999
relating to a settlement with a former executive. Management believes that
these charges will not recur and will not result in future cash charges.
EBITDA is presented because we believe that it is a widely accepted
supplemental indicator of an entity's ability to incur and service debt.
However, EBITDA should not be considered by an investor as an alternative to
net income or operating income as an indicator of our operating performance
or cash flow from operations, or as an alternative to cash flows as a
measure of liquidity.
(i) For purposes of determining the ratio of earnings to fixed charges,
"earnings" includes pre-tax income adjusted for fixed charges. "Fixed
charges" consist of interest expense and that portion of operating lease
rental expense representative of interest (deemed to be one-third of rental
expense).
(j) Net debt represents total indebtedness less cash and investments in
marketable securities.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF ANALYSIS & TECHNOLOGY, INC.
The following selected consolidated financial data as of March 31, 1999, and
1998 and for the years ended March 31, 1999, 1998 and 1997 has been derived from
the audited consolidated financial statements of A&T, each included elsewhere in
this prospectus. The following selected consolidated financial data as of March
31, 1997, 1996 and 1995 and for the years ended March 31, 1996 and 1995 have
been derived from the audited consolidated financial statements of A&T not
included in this prospectus. Each of these audited consolidated financial
statements have been audited by KPMG LLP, independent certified public
accountants. You should read the following information in conjunction with
"Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Analysis & Technology, Inc.," "Business" and the audited
consolidated financial statements of A&T, together with the respective notes
thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------
1995 1996 1997 1998(A) 1999
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from continuing operations......................... $ 131,174 $ 122,924 $ 142,547 $ 159,956 $ 170,355
Costs and expenses.......................................... 125,222 116,670 135,777 152,011 160,075
---------- ---------- ---------- ---------- ----------
Operating earnings from continuing operations............... 5,952 6,254 6,770 7,945 10,280
Interest expense............................................ 542 512 319 171 350
Other, net.................................................. 269 338 638 (570) 1,179
---------- ---------- ---------- ---------- ----------
Earnings before provision for income taxes.................. 5,141 5,404 5,813 8,344 8,751
Income tax expense.......................................... 2,171 1,816 2,437 4,152 3,879
---------- ---------- ---------- ---------- ----------
Net earnings from continuing operations..................... 2,970 3,588 3,376 4,192 4,872
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of tax............... (197) (195) -- -- --
Loss from disposal of discontinued operations, net of tax... -- (1,316) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings................................................ $ 2,773 $ 2,077 $ 3,376 $ 4,192 $ 4,872
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------
1995 1996 1997 1998(A) 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (b)................................................. $ 8,444 $ 9,155 $ 9,337 $ 11,781 $ 12,620
Gross margin (c)........................................... 4.5% 5.1% 4.8% 5.0% 6.0%
EBITDA margin.............................................. 6.4% 7.5% 6.6% 7.4% 7.4%
Cash flow from operating activities........................ $ 4,888 $ 3,123 $ 9,108 $ 7,774 $ 6,130
Capital expenditures....................................... 2,258 1,748 2,327 3,031 2,508
Ratio of earnings to fixed charges (d)..................... 3.5x 3.6x 3.8x 4.8x 4.8x
BALANCE SHEET DATA (AS OF END OF PERIOD):
Current assets............................................. $ 29,910 $ 31,232 $ 28,869 $ 28,088 $ 31,110
Working capital............................................ 15,610 19,789 16,578 14,455 15,925
Total assets............................................... 61,033 56,437 57,813 63,609 73,746
</TABLE>
- ------------------------
(a) Includes the results of operations of Command Control, Inc. from October
1997, Interactive Media Solutions, Inc. from April 1997, UP, Inc. from
November 1997, Dalco Electronics Corporation from August 1997 and Cambridge
Acoustical Associates, Inc. from February 1998, the respective dates of
acquisition by A&T.
(b) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA is presented because we believe that it is a widely
accepted supplemental indicator of an entity's ability to incur and service
debt. However, EBITDA should not be considered by an investor as an
alternative to net income or operating income as an indicator of our
operating performance or cash flow from operations, or as an alternative to
cash flows as a measure of liquidity.
(c) Gross margin is determined by dividing gross profit by revenues from
continuing operations. Gross profit is based on operating income from
continuing operations, including amortization of intangibles and
depreciation expense.
(d) For purposes of determining the ratio of earnings to fixed charges,
"earnings" includes pre-tax income adjusted for fixed charges. "Fixed
charges" consist of interest expense and that portion of operating lease
rental expense representative of interest (deemed to be one-third of rental
expense).
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--
ANTEON CORPORATION
YOU SHOULD READ THE FOLLOWING INFORMATION TOGETHER WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS
PROSPECTUS. CERTAIN STATEMENTS IN THIS SECTION ARE "FORWARD-LOOKING STATEMENTS"
AND YOU SHOULD READ THE "FORWARD-LOOKING STATEMENTS" SECTION FOR SPECIAL
INFORMATION ABOUT OUR PRESENTATION OF FORWARD-LOOKING INFORMATION.
GENERAL
Anteon is a leading provider of advanced information technology and
engineering services principally to a wide range of customers within the U.S.
Federal government. We serve hundreds of governmental clients through 39 offices
worldwide. We have performed work for all 14 Cabinet-level agencies, designing,
maintaining and upgrading critical elements of the government's information
technology infrastructure, such as emergency response, defense, intelligence,
logistics and financial management systems. The Federal government is among the
world's largest purchasers of information technology with expected total
expenditures in fiscal 1999 in excess of $30 billion.
In April 1996 an investor group led by affiliates of Caxton-Iseman Capital
acquired Ogden Professional Services Corporation (the Predecessor Company),
which was renamed Anteon Corporation. Since that acquisition, we have
implemented a strategy designed to increase revenues through internal growth and
acquisitions, improve EBITDA profit margins to a level among the highest in our
industry and improve asset turnover. As a result of this strategy, from 1995 to
1998 we increased revenues at a compound annual growth rate of 32%. Improved
internal performance accounted for approximately 19% of this compound annual
growth rate with the remaining 13% increase attributable to our acquisitions of
Vector Data and Techmatics. In addition, EBITDA increased at a faster rate than
revenues and grew from $2.0 million in 1995 to $16.0 million in 1998 (or $18.8
million after giving effect to the full year of the Techmatics acquisition).
EBITDA margins increased from 1.9% to 6.4% during the same period (or 6.6% after
giving effect to the full year of the Techmatics acquisition). Cash flows used
in operations were $9.4 million for 1998.
Substantially all of our services and products are provided under long-term
government contracts. Our contract base is well diversified and in 1998, we
performed work on approximately 3,000 task orders under more than 500 contracts
for approximately 400 customers. Management estimates that no task order
accounted for more than 5% of 1998 revenues. The contracts we perform can be
categorized into three primary types: time and materials ("time and materials"),
cost-plus fixed fee reimbursement ("cost-plus") and firm fixed price ("fixed
price"). Time and materials contracts represented approximately 47% of our 1998
revenues. Revenue recognition for time and materials contracts is recorded at
hourly rates, which are negotiated with the customer. Time and materials
contracts are typically more profitable because of our ability to negotiate
rates and manage costs on those contracts. Cost-plus contracts represented
approximately 34% of our 1998 revenues. Revenue is recognized under cost-plus
contracts on the basis of direct and indirect costs incurred plus a negotiated
profit calculated as a percentage of our costs. Cost-plus contracts provide
lower risk to us than other contract types because we are reimbursed for all
direct costs and certain indirect costs, such as overhead and general and
administrative charges, and are paid a fixed fee for work performed. Revenues
are recognized under fixed price contracts based on a percentage-of-completion
method. We may be exposed to cost overruns if we encounter variances from our
estimated costs under fixed price contracts. Accordingly, we attempt to minimize
the number of fixed price contracts, particularly for advanced software
development projects. Over the past three-year period fixed price contracts have
represented only 15% to 20% of our revenues, including 19% of 1998 revenues.
36
<PAGE>
Prices on Federal government contracts are generally set using estimated
costs plus a negotiated profit percentage. Under time and materials and fixed
price contracts, margins are not limited by law or regulation; however, the
Federal government's profit objectives in negotiating time and materials and
fixed price contracts seldom provide for operating profits in excess of 15%. Due
to competitive pressures, operating profits on time and materials and fixed
price contracts are often less than 10%. Under cost-plus contracts, operating
profits are statutorily limited to 15% of costs.
In each year a significant portion of our revenues is derived from contract
backlog and a significant portion of that backlog represents work related to
maintenance, upgrade or replacement of systems under contracts or projects for
which we are the incumbent provider. Proper management of contracts is critical
to the overall financial success of Anteon and we believe that we manage costs
effectively. This allows us to be highly competitive on price. Our demonstrated
performance record and service excellence have enabled us to maintain our
position as an incumbent service provider on 100% of our major contracts that
have been recompeted over the past three years, while increasing our backlog
from $428 million in 1996 to $1.1 billion at June 30, 1999. These backlog
amounts consist of "funded" backlog, which is based upon amounts actually
appropriated by a customer for payment of goods and services and "unfunded"
backlog which is based upon management's estimates of the future potential of
our existing contracts to generate revenues for us.
Anteon's costs may be categorized as direct costs such as labor and related
fringe costs which are directly attributable to contract performance, and
indirect costs such as corporate overhead which are not directly attributable to
contract performance. Under our time and materials and cost-plus contracts we
are allowed to charge our direct costs and an agreed-upon portion of our
indirect costs to the customer. A key element in the successful bidding and
execution of contracts is the control of indirect costs. We have developed
comprehensive management information and resource management systems in order to
increase the productivity of our finance and administrative support areas. As a
result of these efforts, our indirect costs have grown at rates much lower than
overall revenues. We believe our indirect costs, at approximately 15% of sales,
are among the lowest in the industry.
On March 7, 1999 we entered into a definitive agreement to acquire all the
outstanding shares of common stock of A&T. We consummated the acquisition on
June 23, 1999 after the approval of the acquisition by the shareholders of A&T.
The acquisition significantly increased the size of Anteon. Pro forma for the
acquisition, Anteon's net sales and EBITDA in 1998 would have been $450.8
million and $31.4 million, respectively. Following the consummation of the
acquisition, in addition to the cost savings reflected in the Unaudited Pro
Forma Condensed Consolidated Financial Data appearing elsewhere in this
prospectus, we believe that Anteon will be able to realize costs savings through
synergies in indirect costs and general and administrative expenses. In
addition, after giving pro forma effect to the acquisition, the level of
billable indirect costs under our contracts will increase because the proportion
of our revenues generated by cost-plus contracts will increase from 40% to 55%.
This will allow Anteon to receive payment for a greater portion of its indirect
costs. Based on our ability to pass such indirect costs through to our
government customers, we estimate this will result in an additional $2.5 million
of reimbursable costs.
37
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our results of operations based on the
percentage relationship of certain items to contract revenues during the period
shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Revenues............................................................... 100.0% 100.0% 100.0% 100% 100%
Costs of revenues...................................................... 91.4 90.5 88.7 89.1 88.3
--------- --------- --------- --------- ---------
Gross profit....................................................... 8.6 9.5 11.3 10.9 11.7
General and administrative expenses.................................. 4.7 4.6 6.1 5.4 5.6
Costs related to acquisitions(a)..................................... 1.5 2.0 1.0 0.8 1.5
--------- --------- --------- --------- ---------
Operating income................................................... 2.4 2.9 4.2 4.7 4.6
</TABLE>
- ------------------------
(a) Includes amortization of non-compete agreements, goodwill amortization and
costs incurred in connection with unsuccessful acquisitions.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Revenue increased 34.8% to $145.6 million in for the first six months in
1999 from $108.0 million in 1998. The revenue growth reflects the acquisition of
Techmatics as well as continued internal growth from the Company's information
technology and engineering technology businesses. Techmatics generated $43.9
million in revenue during the six months ended June 1999 as compared with one
month's revenue of $8.2 million in June 1998. The company was also able to
significantly increase its contract backlog with several major awards in late
1998 and early 1999 including Answer, ITOP II and Theater Ballistic Missile
Defense and began to earn revenue on the startup of those new contracts. Backlog
increased from $414 million as of June 30, 1998 to $1.3 billion as of June 30,
1999.
COSTS OF REVENUES
Costs of revenues, as a percent of revenues, decreased to 88.3% during the
first six months in 1999 from 89.1% increasing the gross profit, which grew by
8%, from 10.9% in 1998 to 11.7% in 1999. This favorable result is attributable
to several factors. Contributing to the growth was the relatively higher
operating profit margin of Techmatics and the improved profitability of the
Company's Products and Services business unit.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which consists of corporate management,
finance and administration, marketing and contracts, was 5.6% of revenues for
the first six months of 1999. This was a 4% increase from the same period in
1998. The growth can be attributed primarily to an investment in infrastructure
to support a substantially larger company. In addition, the Company spent more
on marketing costs to pursue opportunities created from new contract awards
which substantially increased backlog.
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<PAGE>
OPERATING INCOME
Operating income continued to grow increasing by 33.3% to $6.8 million in
fiscal 1999 from $5.1 million in fiscal 1998. The operating profit growth was
attributable to the addition of Techmatics. Operating margins remained steady at
4.7% of revenue.
Net interest expense increased 224% to $5.5 million in the first six months
of 1999 from $1.7 million in the same period in 1998. This was principally due
to the cost of debt incurred to acquire Techmatics and accrued interest expenses
for the new senior subordinated notes. This included fees associated with a
bridge loan facility.
Earnings before taxes decreased 67% to $1.1 million in the first six months
of 1999 from $3.4 million in the same period in 1998. This decline was primarily
attributable to interest expense on the notes.
1998 COMPARED WITH 1997
REVENUES
Revenues increased by $73.5 million or 41.7% to $249.8 million in 1998 from
$176.3 million in 1997 due to internal growth and acquisitions. Anteon's
internal growth (I.E., excluding acquisitions) of 13.5%, or $23.9 million, was
primarily driven by increased licensing revenues from the Product Applications
and Services Group of the Enterprise Solutions and Services Group and increased
revenues under the TC-AIMS contract. Techmatics generated $49.6 million in
revenues subsequent to its acquisition on May 29, 1998. The full year impact
from the acquisition of Techmatics increased Anteon's pro forma revenues to
$282.5 million. Anteon also significantly increased its contract backlog by
winning several major awards in late 1998, including the $25 billion GSA ANSWER
contract and the $10 billion Department of Transportation ITOP II contract.
Backlog increased during 1998 from $341 million at January 1, 1998 to $1.2
billion at December 31, 1998, $119.2 million of which was attributable to new
contract awards and $230 million of which was attributable to the acquisition of
Techmatics and the remainder of which was attributable to our ability to
maintain our position as an incumbent service provider on 100% of our major
contracts that have been recompeted.
COSTS OF REVENUES
Costs of revenues increased by $62.1 million or 38.9% to $221.6 million in
1998 from $159.5 million in 1997. As a percentage of revenues, costs of revenues
decreased to 88.7% in 1998 from 90.5% in 1997. The improvement in gross margins
was attributable to improved reimbursement for indirect overhead expenses,
higher gross profit margins of Techmatics and improved profitability of Anteon's
Product Applications and Services Group.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $7.2 million or 88.9% from
$15.3 million in 1998 from $8.1 million in 1997. As a percentage of revenues,
general and administrative expenses increased to 6.1% in 1998 from 4.6% in 1997.
General and administrative expenses consist of corporate management, finance and
administration, marketing and contract functions. The increase in general and
administrative expense was attributable primarily to the addition of $3.1
million of overhead expenses of Techmatics in 1998 and the expansion of Anteon's
personnel and management to meet the increasing demands of its expanding
business. Generally, a significant portion of these costs are reimbursable under
Anteon's contracts. Additionally, general and administrative expenses were
increased by a $0.7 million write-off of unamortized contract start-up costs
incurred by our Predecessor Company relating to contracts that were awarded in
1995.
39
<PAGE>
OPERATING INCOME
Operating income increased by $5.3 million or 103.9% to $10.4 million in
1998 from $5.1 million in 1997. As a percentage of revenues, operating income
improved by 45% to 4.2% in 1998 from 2.9% in 1997.
Net interest expense increased to $5.6 million in 1998 from $2.4 million in
1997 principally due to increased debt incurred to acquire Techmatics.
Income before taxes increased 78% to $4.8 million in 1998 from $2.7 million
in 1997. Anteon's effective tax rate increased to 48.8% in 1998 from 39.3% in
1997 principally due to the non-deductibility of goodwill generated by Anteon's
acquisition of Vector Data. After-tax income increased 56.3% to $2.5 million in
1998 from $1.6 million in 1997. The large increase in revenue and operating
earnings, offset in part by the increase in interest expense and tax rate,
contributed to this increase in net income.
1997 COMPARED WITH 1996
REVENUES
Revenues increased by $34.5 million or 24.3% to $176.3 million in 1997 from
$141.8 million in 1996. Internal growth (I.E., excluding acquisitions) of 20.4%
or $28.9 million was driven by increased revenues under the CAPZONE and PACZONE
contracts. Vector Data generated $5.6 million in revenues subsequent to its
acquisition in August 1997.
COSTS OF REVENUES
Costs of revenues increased by $29.9 million or 23.1% to $159.5 million in
1997 from $129.6 million in 1996. As a percentage of revenues, costs of revenues
decreased to 90.5% in 1997 from 91.4% in 1996. Fiscal 1997 represented the first
full fiscal year in which current management operated Anteon. The increase in
gross margins was attributable to improved performance on several fixed price
contracts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and adminstrative expenses increased by $1.4 million or 20.9% to
$8.1 million in 1997 from $6.7 million in 1996. As a percentage of revenues,
general and administrative expenses decreased to 4.6% in 1997 from 4.7% in 1996.
The aggregate dollar increase was attributable to the addition of Vector Data's
general and administrative charges and the expansion of Anteon's marketing staff
in an effort to increase backlog.
OPERATING INCOME
Operating income increased by $1.7 million or 50.0% to $5.1 million in 1997
from $3.4 million in 1996. Operating margins grew by 21% to 2.9% in 1997 from
2.4% in 1996. This improved operating income was primarily due to certain
profitable contracts and improved profits generated by Vector Data.
Interest expense increased to $2.4 million in 1997 from $1.5 million in
1996, principally reflecting a full year of debt outstanding in 1997 compared to
eight months the prior year (reflecting the date of the original acquisition of
the Predecessor Company) as well as increased indebtedness due to the
acquisition of Vector Data.
Income before taxes increased 35.0% to $2.7 million in 1997 from $2.0
million in 1996 as a result of a higher operating profit margin, offset by
increased interest expense. Anteon's effective tax rate increased to 39.3% in
1997 from 36.3% in 1996, principally due to the non-deductibility of goodwill
generated from Anteon's acquisition of Vector Data. After-tax income increased
23.1% to $1.6 million in 1997 from $1.3 million in 1996.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 1999 CASH FLOW
For the first six months of 1999, net cash provided from operating
activities totaled $9.6 million. The positive cash flow resulted primarily from
a $1.9 million decrease in accounts receivable and a $5.8 increase in accounts
payable/accrued expenses. The decrease in accounts receivable was driven in
large part by the successful collection efforts of invoices that had been
backed-up in processing by the Federal government in a number of its payment
offices. The overall days sales outstanding ("DSO") for the Company at mid-year
ended June 30, 1999 was 76 days. While the Company's core business maintained a
DSO in the 55-70 day range during 1998, its acquired subsidiaries, Techmatics
and Vector Data, have maintained DSO's of over 100 days during the past year.
Processes are being put in place to reduce the DSO to the 60-day range during
the second half of 1999.
Net cash used in investing activities for the six months totaled $118.7
million. The principal investment was the purchase of Analysis & Technology for
approximately $115.4 million, including transaction costs, which closed on June
23. Capital expenditures totaled $1.3 million for the six months.
Net cash provided by financing activities for the six months totaled $111.7
million. This was primarily due to $100 million in funds obtained through
issuance of the new senior subordinated notes, an equity contribution of $22.5
million, net of a $4.9 million in paydown of deferred obligations associated
with the 1998 acquisition of Techmatics, and $8.5 million of fees incurred in
connection with the new senior subordinated notes and the new credit facility.
1998 CASH FLOW
Net cash used in operating activities for 1998 totaled $8.3 million. The net
cash requirements resulted primarily from a $15.6 million increase in accounts
receivable. This increase was principally due to a delay in processing of
contractor payments by the Federal government in a number of its payment offices
due to a reduction of administrative personnel and difficulties in successfully
implementing office automation to relieve the congestion. The Federal government
is working to correct this problem and we believe these delays should be
resolved by the end of 1999. We focus on capital management in order to maximize
asset turnover and reduce working capital. At the time its Predecessor Company
was acquired, Anteon had days sales oustanding ("DSO") of 119 days. Anteon was
able to reduce overall DSO for the years ended December 31, 1996, 1997 and 1998
to 79 days, 59 days and 89 days, respectively. Anteon's DSO increased in 1998
due to the acquisition of Vector Data in late 1997 and Techmatics in May 1998.
Prior to the acquisitions of Vector Data and Techmatics, Anteon maintained a
63-day average DSO in 1998. Vector Data and Techmatics each had DSOs of over 100
days during 1998. Anteon has implemented initiatives to reduce Anteon's overall
DSO to the 70-day range by the end of June 1999.
Net cash used in investing activities for 1998 totaled $37.5 million. The
principal investment requirement was $29.7 million for the acquisition of
Techmatics. Capital expenditures totaled $2.1 million, approximately 40% of
which were attributable to Anteon's capital expenditure for CostPoint, an
integrated enterprise-wide information system.
Net cash provided by financing activities for 1998 totaled $45.3 million.
This included an increase of $46.3 million in senior debt borrowing to $70.4
million at December 31, 1998 from $24.1 million at December 31, 1997.
1997 CASH FLOW
Net cash flow from operating activities in 1997 totaled $14.1 million,
principally reflecting a $10.1 million reduction in accounts receivable, $5.1
million in depreciation and amortization and $1.6 million in net income.
41
<PAGE>
Net cash used in investing activities totaled $18.1 million in 1997. The net
cash cost of acquiring Vector Data was $17.2 million. Additionally, Anteon had
$0.8 million capital expenditures.
Net cash provided from financing activities totaled $4.5 million, reflecting
an increase in Anteon's senior debt from $19.6 million at December 31, 1996 to
$24.1 million at December 31, 1997.
LIQUIDITY
In June 1999, the Company entered into a new five-year line of credit with
nine major banks totaling $180 million. This line of credit is comprised of a
$120 million revolving credit facility subject to availability based on a
borrowing base and a $60 million term note. The borrowing base is determined by
computing a percentage of Anteon's billed and billable accounts receivable, with
availability totaling $54.9 million as of June 30, 1999. Aggregate loans drawn
under this revolving line of credit totaled $13.0 million as of June 30, 1999.
In addition, Anteon secured advances of $60.0 million against the term note.
June 1999 ending cash balance totaled $2.9 million. However, access to the bank
line is further restricted by the leverage covenant which is 5.75 times the
adjusted, pro forma EBITDA over the past 12 months. Based on the June 30th
leverage of just under 5.00, this left approximately $27 million in immediately
available liquidity. The Company plans a further improvement in its accounts
receivable DSO over the next 6-9 months timeframe, freeing up approximately
$12-15 million in cash. This DSO reduction and liquidity improvement would be
used to reduce the Company's overall leverage.
We intend to meet future capital commitments, which principally involve the
execution of additional acquisitions, through additional senior bank debt and
the issuance of subordinated debt and equity in the public and private capital
markets.
YEAR 2000
During fiscal 1998 we implemented a plan which prepared our systems to be
Year 2000 compliant. We have completed our inventory phase and, based on this
analysis, we believe that our systems and applications will not be adversely
affected by any Year 2000 issues. Our aggregate costs incurred in 1998 to assess
our Year 2000 readiness were not material and management expects that any future
expenditures in 1999 will be similarly immaterial. However, we cannot assure you
that this estimate will be correct.
In addition, we have addressed the Year 2000 issue with our significant
third-party suppliers and customers through inclusion of appropriate contractual
provisions in our business dealings with such companies to ensure their Year
2000 readiness. Management has no reason to believe that any such companies will
encounter Year 2000 issues. However, we cannot assure you that they will be
successful in avoiding any Year 2000 issues or resolving them in a timely
manner, or that any failure to do so would not materially and adversely affect
our business.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--
ANALYSIS & TECHNOLOGY, INC.
YOU SHOULD READ THE FOLLOWING INFORMATION TOGETHER WITH A&T'S CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS
PROSPECTUS. CERTAIN STATEMENTS IN THIS SECTION ARE "FORWARD-LOOKING STATEMENTS"
AND YOU SHOULD READ THE "FORWARD-LOOKING STATEMENTS" SECTION FOR SPECIAL
INFORMATION ABOUT OUR PRESENTATION OF FORWARD-LOOKING INFORMATION.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998
The major factors in the comparison of fiscal 1999 with fiscal 1998 are as
follows:
- Revenue increased 6.5% to $170.4 million from $160.0 million.
- Revenue for the Company's Engineering and Information Technologies
("Engineering/IT") business grew 3.2%
- Interactive Media's revenue increased 29.7%, including a 16.4% increase in
commercial revenue.
- Operating margin increased to 6.0% from 5.0%.
-- Operating margin was 6.1% for Engineering/IT and 5.6% for Interactive
Media.
-- Margins improved due to improved cost controls. Also contributing to
the margin improvement in Interactive Media was a decrease of fixed
indirect expenses as a percentage of revenue due to revenue growth.
-- Operating margin was 5.3% for fiscal 1998 without the effect of a
non-recurring software charge.
- Net earnings were $4.9 million compared with $4.2 million resulting in an
increase of 16.2%. During fiscal 1998, the Company sold its share of a
joint venture, Automation Software Incorporated (ASI), and took the
software charge previously noted. The joint venture sale increased the
Company's effective tax rate. The net effect of these non-recurring items
and their tax effects was an after-tax gain of $87 thousand.
- Basic earnings per share increased 12.6% to $1.34 from $1.19. On a diluted
basis, earnings per share increased 12.1% to $1.20 from $1.07.
Revenue increased 6.5% to $170.4 million in fiscal 1999 from $160.0 million
in fiscal 1998. The revenue increase is attributable to continued growth in both
the Company's Engineering/IT business and its Interactive Media technology-based
training business. For fiscal 1999, the Company's Engineering/IT revenue grew
3.2% to $144.2 million from $140.0 million in fiscal 1998. Interactive Media's
revenue increased 29.7% to $26.1 million from $20.1 million in fiscal 1998. Its
commercial revenue increased 16.4% to $17.1 million from $14.7 million in fiscal
1998.
Revenue for the Company's Engineering/IT business was adversely affected by
a decrease in work subcontracted to other companies and a decrease in purchased
materials. For fiscal 1999, work subcontracted to other companies and purchased
materials decreased $5.3 million and $1.9 million, respectively, from fiscal
1998. Subcontracting was down because in some cases A&T is gaining market share,
some subcontractors have gotten their own contracts, and some subcontractor's
work has not been renewed by the customer. Purchases of materials are down due,
in part, to a U.S. Navy mine clearing hardware
43
<PAGE>
contract that is nearing completion. Without the effect of subcontracts and
materials, Engineering/IT revenue would have been up 10.2% for fiscal 1999.
Interactive Media's revenue was favorably affected by the acquisition of UP,
Inc. in November of last year and by an expanded sales force.
During the year, total backlog varied between $589.4 million and $805.7
million. In fiscal 1999, $56.1 million of backlog expired without being funded,
while in fiscal 1998, $50.7 million of backlog expired without being funded. The
backlog used during fiscal 1999, plus the unfunded backlog that expired, was
more than offset by newly awarded contracts. Backlog as of March 31, 1999 was
$775.8 million, a 31.6% increase from $589.4 million at the end of fiscal 1998.
Government funding continues to be dependent on congressional approval of
program level funding and on contracting agency approval for the Company's work.
The extent to which backlog will be funded in the future cannot be determined.
Operating earnings increased 29.4% to $10.3 million from $7.9 million in
fiscal 1998. Operating margins from continuing operations were 6.0% in fiscal
1999 compared with 5.0% in fiscal 1998. Fiscal 1998 operating earnings were
negatively affected by software charges totaling $530 thousand, recorded in the
second quarter of fiscal 1998, primarily for capitalized software development
costs to support customers in the natural gas business and software development
and related costs for image processing products which the Company deemed to be
unrecoverable. Without these charges, the operating margin for fiscal 1998 was
5.3%.
Operating margin for Engineering/IT, increased from 5.3% in fiscal 1998,
without the software charges, to 6.1% in fiscal 1999. The reduction in lower
margin subcontract and material revenue plus improved cost controls and good
performance on contracts contributed to the Engineering/IT increase. Operating
margins for Interactive Media increased from 5.4% in fiscal 1998 to 5.6% in
fiscal 1999. The increase was due to a decrease in indirect expenses as a
percentage of revenue due to the revenue growth.
Total other expenses as a percentage of revenue were 0.9% for fiscal 1999
compared to 0.7% in fiscal 1998, excluding the effect of the sale of the
Company's Interest in ASI to the Company's joint venture partner. The sale
resulted in a pre-tax gain of $1.6 million in fiscal 1998. For fiscal 1999, both
interest expense and amortization of goodwill increased due to the Company's
recent acquisitions, including a contingent payment to the former owner of UP,
Inc. as discussed more fully in "Liquidity and Capital Resources."
Earnings before income taxes increased 4.9% to $8.8 million from $8.3
million in fiscal 1998. The Company's effective tax rate on earnings before
income taxes was 44.3% in fiscal 1999 compared with 49.8% in fiscal 1998. The
effective tax rate was higher in fiscal 1998, primarily due to the recognition
of deferred taxes on undistributed earnings of the Company's joint venture, as a
result of the sale. The effective tax rate without the effect of the joint
venture sale was 43.9%. The effective tax rate in fiscal 1999, compared to the
effective tax rate without the effect of the joint venture sale is fiscal 1998,
was higher due to an increase in nondeductible amortization of goodwill
associated with the UP acquisition.
Net earnings increased 16.2% to $4.9 million from $4.2 million in fiscal
1998. The revenue increase and the operating margin increase both contributed to
the net earnings increase. The net effect of the sale of the Company's interest
in its joint venture and the software charges noted above was an after-tax gain
of $87 thousand for fiscal 1998.
Basic earnings per common share increased 12.6% to $1.34 from $1.19 in
fiscal 1998. Diluted earnings per common share increased 12.1% to $1.20 from
$1.07 in fiscal 1998.
The weighed average number of common shares used to compute basic earnings
per share increased to 3.6 million in fiscal 1999 from 3.5 million in fiscal
1998. The weighted average number of common shares used to compute diluted
earnings per share increased to 4.0 million in fiscal 1999 from 3.9 million in
fiscal 1998. The increase was due primarily to an increase in the number of
stock options outstanding and a
44
<PAGE>
higher average stock price, offset in part by the repurchase of the Company's
shares as discussed more fully below in "Liquidity and Capital Resources".
FISCAL 1998 COMPARED WITH FISCAL 1997
Revenues increased 12.2% to $160.0 million in fiscal 1998 from $142.5
million in fiscal 1997. The revenue increase is attributable to continued growth
in both A&T's Engineering/IT business and in its Interactive Media
technology-based training business. In fiscal 1998, A&T's Engineering/IT
revenues grew 11.5% to $140.0 million from $125.4 million in fiscal 1997. IMC's
revenues increased 17.3% to $20.1 million. Its commercial revenues increased
58.7% to $14.7 million in fiscal 1998 from $9.3 million in fiscal 1997 and its
government related revenues decreased 30% to $5.4 million in fiscal 1998 from
$7.9 million in fiscal 1997.
A&T made five acquisitions during fiscal year 1998. In total, these
acquisitions added approximately $6.6 million to A&T's fiscal 1998 revenues.
During the year, total backlog varied between $461.7 million and $589.4
million. In fiscal 1998, $50.7 million of backlog expired without being funded,
while in fiscal 1997, $19.5 million of backlog expired without being funded. The
backlog used during fiscal 1998, plus the unfunded backlog that expired, was
more than offset by newly awarded contracts and backlog added as a result of
A&T's acquisitions. Backlog as of March 31, 1998 was $589.4 million, a 22.6%
increase from $480.7 million as of March 31, 1997, and was well above A&T's
benchmark of two and one-half times current revenues. Government funding
continues to be dependent on congressional approval of program level funding and
on contracting agency approval for A&T's work. The extent to which backlog will
be funded in the future cannot be determined.
Operating earnings increased 17.4% to $7.9 million in fiscal 1998 from $6.8
million in fiscal 1997. Operating margins were 5.0% in fiscal 1998 compared with
4.7% in fiscal 1997. Fiscal 1998 operating earnings were negatively affected by
software charges totaling $530,000, recorded in the second quarter of fiscal
1998, primarily for capitalized software development costs to support customers
in the natural gas business and software development and related costs for image
processing products which A&T deemed to be unrecoverable. Without these charges,
the operating margin for fiscal 1998 was 5.3%.
Operating margins for Engineering/IT, without the software charges,
increased from 5.0% in fiscal 1997 to 5.3% in fiscal 1998. Operating margins for
IMC during these same periods increased from 3.2% to 5.4%. Margins improved
overall because of improved cost controls. Also contributing to margin
improvement in IMC was a decrease of fixed indirect expenses as a percentage of
revenues due to revenue growth.
Total other expenses were affected by the sale of A&T's interest in
Automation Software Incorporated ("ASI") to A&T's joint venture partner. The
sale resulted in a pre-tax gain of $1.6 million in fiscal 1998. In addition, the
proceeds from the sale were used to pay down certain of A&T's long-term debt,
resulting in decreased interest expense in fiscal 1998. Other net expense
increased in fiscal 1998 to 0.6% of revenue compared with 0.5% of revenues in
fiscal 1997. The other net expense increase was due, in part, to the
amortization of goodwill associated with A&T's fiscal 1998 acquisitions.
Earnings before income taxes increased 43.5% to $8.3 million in fiscal 1998
from $5.8 million in fiscal 1997. A&T's effective tax rate on earnings before
income taxes was 49.8% in fiscal 1998 compared with 41.9% in fiscal 1997. The
effective tax rate was higher in fiscal 1998, primarily due to the recognition
of deferred taxes on undistributed earnings of A&T's joint venture as a result
of the sale, and due to an increase in nondeductible amortization of goodwill
associated with A&T's acquisitions. The effective tax rate without the effect of
the joint venture sale was 43.9%.
Net earnings increased 24.2% to $4.2 million from $3.4 million in fiscal
1997. The revenue increase and the operating margin increase both contributed to
the increase in net earnings. The net effect of the sale of A&T's interest in
its joint venture and the software charges noted above and the related tax
effects was an after-tax gain of $0.1 million in fiscal 1998.
45
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1999 CASH FLOW
For fiscal 1999, net cash provided by operating activities totaled $5.9
million. The net cash increase resulted primarily from net earnings before
deducting non-cash charges for depreciation of property and amortization of
intangible assets, and a decrease in accounts payable and accrued expenses of
$1.3 million, offset in part and an increase in contract, notes, and other
receivables of $3.3 million. Contract receivables totaled $28.7 million, $25.6
million and $247.7 million as of March 31, 1999, 1998, and 1997, respectively,
and represented approximately 41%, 40%, and 43% of total assets as of those
dates. The average period of payment to the Company was 57 days at March 31,
1999, 54 days at March 31, 1998; and 58 days at March 31, 1997.
Net cash used in investing activities for fiscal 1999 totaled $5.6 million.
The primary use of this cash was for the addition of office equipment, the
development of a new management information system, and for acquisitions,
including a contingent payment to the former owners of UP, Inc., in accordance
with the purchase agreement for the acquisition executed in November 1997.
Net cash used in financing activities for fiscal 1999 totaled $1.2 million.
The primary source of cash from financing activities was from the exercise of
stock options. The primary uses of cash from financing activities were for the
payment of dividends and the repurchase of the Company's common shares. On May
30, 1997, the Company announced it had expanded its share repurchase program.
The Company's Board of Directors authorized the repurchase of an additional
450,000 shares or a total of up to 750,000 shares in amounts and at times and
prices to be determined by the Company's management. Since the program was
initiated in March 1996, the Company has repurchased 399,400 shares. Since March
31, 1998 the company has repurchased 42,900 shares under this repurchase program
at current market prices on the dates of purchase. There are approximately 3.7
million shares outstanding at March 31, 1999.
Any capital needs not satisfied by cash generated from operations, were, and
in the future will be, met with money borrowed by the Company under its
revolving credit agreement. The total funds available to the Company under its
revolving credit agreement at March 31, 1999 were $20.0 million. There was no
borrowing under the Company's agreement as of March 31, 1999 or 1998.
It is anticipated that the Company's existing cash, together with funds
generated from operations and available borrowings under its revolving credit
agreements, will be sufficient to meet its normal working capital requirements
for the foreseeable future. As of March 31, 1999, the Company does not have any
major capital commitments.
The Company believes that inflation has not had a material effect on its
business.
FISCAL 1998 CASH FLOW
For fiscal 1998, net cash provided by operating activities totaled $7.8
million. The net cash increase resulted primarily from earnings before deducting
non-cash charges for depreciation of property and amortization of intangible
assets, and a decrease in contract, notes and other receivables of $1.1 million.
The decrease in contract receivables was due primarily to faster payment by the
government as a result of electronic processing of selected government invoices
and to collection of receivables under firm fixed-price contracts. Contract
receivables totaled $25.6 million, $24.7 million and $24.2 million as of March
31, 1998, 1997, and 1996, respectively, and represented approximately 40%, 43%
and 43% of total assets as of those dates, respectively. The average period of
payment to A&T was 54 days at March 31, 1998, 58 days at March 31, 1997 and 71
days at March 31, 1996.
Net cash used in investing activities for fiscal 1998 totaled $9.1 million.
Cash provided from the sale of ASI of $3.0 million was more than offset by
facility expenditures and by expenditures for A&T's fiscal 1998
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acquisitions. Payments for the acquisitions were made from existing cash and
funds available under A&T's revolving credit agreement.
Net cash used in financing activities for fiscal 1998 totaled $670,000. The
primary source of cash from financing activities was from the exercise of stock
options. The primary uses of cash from financing activities were for the payment
of dividends and the repurchase of shares of A&T's common stock.
YEAR 2000
A&T established a task force in January 1998 to assess Year 2000 risks,
identify and implement solutions to known problems and report the results of the
assessment. The task force examined the services and products A&T provides, its
internal information technology software, facilities and infrastructure and
third-party risks. A&T is approaching its Year 2000 readiness program in three
phases: assessment, planning and preparation, and implementation.
While A&T has plans in place to address known Year 2000 issues under its
control, an infrastructure problem outside of its control could disrupt A&T's
operations depending on the nature and severity of the problems. A&T expects
that most utilities and service providers would be able to restore service
interruptions caused by Year 2000 problems within days. However, more pervasive
system problems involving multiple providers could last longer depending on the
complexity of the systems and the effectiveness of their contingency plans.
Although A&T is dedicating reasonable resources towards attaining Year 2000
readiness, there is no assurance it will be successful in its efforts to
identify and address all Year 2000 issues. Even if A&T acts in a timely manner
to complete all of its assessments and identifies, develops and implements
remediation plans it believes to be adequate, some problems may not be
identified or corrected in time to prevent material adverse consequences to A&T.
Our statements above regarding estimated completion dates, costs, risks and
other forward-looking statements regarding Year 2000 are based on A&T's best
estimates given information that is currently available and is subject to
change. As A&T continues to progress with its Year 2000 initiatives, it may
discover that actual results will differ materially from these estimates.
A more detailed explanation of the "Year 2000 Readiness Disclosure" for A&T
is available in A&T's Annual Report on Form 10-K for the fiscal year ended March
31, 1998. Please refer to the section entitled "Where You Can Find More
Information" which appears later in this prospectus for more information.
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THE FEDERAL GOVERNMENT INFORMATION TECHNOLOGY SERVICES INDUSTRY
OVERVIEW
The U.S. Federal government is among the world's largest purchasers of
information technology. The Office of Management and Budget ("OMB") projects
that total information technology expenditures in fiscal 1999 will exceed $30
billion. These expenditures have grown consistently during the 1990s. According
to the OMB, from 1991 to 1998 the Federal government information technology
market increased at a consolidated annual growth rate of 4.2%. As shown below,
the annual Federal information technology budget for fiscal year 1998 through
fiscal year 2002 is expected to grow at a rate of approximately 4.4% annually.
Civilian agency information technology budgets are expected to be 60% to 65% of
the total Federal information technology budget, or between $18 billion and $20
billion annually, and annual defense information technology budgets are expected
to be 35% to 40% of such total budget, or between $11 and $12 billion annually.
However, due to projected increased Federal government outsourcing, the amount
of information technology services procured from contractors is expected to
increase at a faster rate, by approximately 6.9% per annum from 1998 to 2002.
The following table sets forth the Federal government's historical and projected
expenditures for information technology from 1991 to 2002:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL FEDERAL IT SPENDING LEVELS
(1991-2002)
<S> <C>
$ (BILLIONS)
1991 22.10
1992 23.50
1993 25.00
1994 25.80
1995 27.30
1996 28.00
1997 29.00
1998 29.50
1999 30.30
2000 31.60
2001 33.10
2002 35.10
Source:OMB
</TABLE>
TRENDS
There are five primary factors that should drive this growth of the Federal
information technology services market: (1) increased outsourcing, (2) emphasis
on systems modernization, (3) legislative efforts to streamline government
procurement procedures, (4) the increasing requirement for integration of
commercial and custom information technology applications and (5) increased
emphasis on training and simulation.
- INCREASED OUTSOURCING. Major forces contributing to the increase in
information technology outsourcing are Federal government downsizing,
increased procurement efficiency, the declining availability of
programming skills among Federal government personnel (and government
staffing limits) and the backlog of software maintenance tasks at most
government data centers. The GSA anticipates a continuation of the trend
toward the use of outside information technology providers. According to
the OMB, 78% of the Federal government's information technology spending
in 1998, or $23.1 billion, flowed through to contractors. According to
OMB, outsourced information technology services are projected to grow at a
rate faster than overall Federal government expenditures on information
technology, increasing to 86% of projected expenditures in 2002 or $30.2
billion and resulting in a 6.9% growth rate per annum.
- EMPHASIS ON SYSTEM MODERNIZATION. As part of their efforts to reduce
procurement costs, the Department of Defense and the U.S. Navy, in
particular, are emphasizing upgrading existing platforms to next
generation technologies rather than procuring completely new systems. For
example, the Department of Defense's funding priorities in 1999 emphasize
the modernization and upgrading of shipboard systems to maintain the U.S.
Navy's superior fighting capabilities. Rather
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than replace its aging fleet of ships, the U.S. Navy has decided to invest
in upgrading its existing fleet with the latest computer and weapons
systems. To accomplish this in an environment of reduced Armed Forces
personnel, the U.S. Navy is increasingly dependent on highly skilled
technical specialists to provide a full spectrum of services to support
these activities. After giving effect to the acquisition, we will be
deeply involved in virtually every major U.S. Navy platform as well as
with many of the strategic Program Executive Offices. Moreover, A&T is
among the top-tier U.S. Navy Warfare Center contractors and is the leading
contractor based on 1998 revenues for the Naval Undersea Warfare Center
("NUWC"). With a broad-based presence on critical U.S. Navy programs,
management believes that Anteon and A&T are well-positioned to benefit
from the billions of dollars in modernization and upgrade expenditures
anticipated by the U.S. Navy over the next decade.
- INFORMATION TECHNOLOGY MANAGEMENT REFORM ACT OF 1996 ("ITMRA"). The ITMRA,
through acquisition vehicles such as GSA Schedules and IDIQ contracts, has
changed the government's process of procuring information technology by
(1) placing increased attention on the cost effectiveness of information
technology, the return on the government's investment and resulting
contractor performance with respect to such technology and (2) making
individual agencies accountable for oversight of information technology
budgets. These two trends are expected to result in increased interagency
coordination and sharing of expenses, and fewer proprietary or single
agency solution systems. Companies such as Anteon and A&T, which are
well-positioned across several major governmental agencies, should benefit
from these trends.
- INCREASED USE OF COMMERCIAL OFF-THE-SHELF HARDWARE AND SOFTWARE. The
Federal government has sought to address an increasing portion of its
information technology needs through relatively inexpensive, open
architecture systems based on commercial off-the-shelf ("COTS") hardware
and software, which are rapidly displacing the single purpose, custom
systems historically favored by the Federal government. These hardware and
software products are, unlike proprietary systems, more open, modular and
scaleable, and in some instances even better suited to meet governmental
needs. The implementation and usage of COTS products are expected to
increase as the government seeks to ensure the compatibility of its
systems across agencies. In addition, the continued shortening of software
upgrade cycles is expected to increase the demand for new products. These
trends will favor system integrators such as Anteon and A&T, who have a
deep knowledge of their customers and systems through years of performing
contracts, as well as extensive expertise in COTS solutions.
- INCREASED MODELING, TRAINING AND SIMULATION. Because of the high cost of
weapon systems development, testing and field training, there is increased
reliance on modeling and simulations using software applications (from the
conceptual design of weapons to their operations and maintenance and the
training of personnel), training simulators and other mission rehearsal
techniques. Anteon has significant experience in designing and
implementing such systems and programs for a variety of customers, such as
the Air Force and U.S. Navy. Management believes that this experience will
permit Anteon to obtain future new awards.
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BUSINESS
Anteon is a leading provider of advanced information technology and
engineering systems and services. We serve hundreds of governmental clients,
principally within the U.S. Federal government, from 39 offices worldwide. We
have performed work for the U.S. Congress and all 14 Cabinet-level government
agencies, designing, maintaining and upgrading critical systems such as defense,
intelligence, emergency response, logistics support and financial management
systems. For the year ended December 31, 1998, we performed work on
approximately 3,000 task orders on more than 500 contracts. In addition, during
the past four years, we have increased revenues at a 32.0% compound annual
growth rate including a 19.9% compound annual growth rate excluding
acquisitions. Pro forma for the acquisition, our 1998 revenues and Adjusted
EBITDA were $450.8 million and $35.1 million, respectively. Cash flows used in
operating activities on a pro forma basis were $2.3 million for 1998.
The Federal government is among the world's largest purchasers of
information technology, with total expenditures in fiscal 1999 expected to be in
excess of $30 billion and expected to increase by approximately 4.4% per annum
from $29.5 billion in 1998 to $35.1 billion in 2002. Due to projected increased
Federal government outsourcing, the amount of information technology services
procured from contractors is expected to increase at a faster rate, by
approximately 6.9% per annum from 1998 to 2002. We believe that the emphasis of
the Federal government on downsizing and budget constraints for large new
projects will continue to result in the increased use of technology to enhance
productivity with expenditures focused on upgrading existing equipment and
systems, including many that we designed and are currently supporting. In this
environment, contractors like us that are capable of providing complete
end-to-end technology services across a number of applications and are
well-positioned to take advantage of the opportunities presented by these
trends.
We have developed over a 22-year period the expertise and capabilities to
deliver a broad range of technology solutions. For example, we are currently
working with the U.S. Federal Emergency Management Agency to design and
integrate the National Emergency Management Information System, a management
information system that enables the White House and other governmental offices,
to effectively monitor and mobilize multiple agencies and financial resources in
response to national emergencies. This program is the largest WindowsNT
implementation in the Federal government and we believe it is the most
comprehensive emergency management system available. In addition, we believe
there is significant potential for generating additional revenues based on the
knowledge we have acquired in designing and integrating this system and its wide
applicability to other government agencies and projects. Another example of our
work is the logistics system we developed for the U.S. Air Force called Cargo
Movement Operation System ("CMOS"). CMOS tracks all equipment and cargo movement
operations for the Air Force world wide. This system is the first standard U.S.
Air Force client/server application to be installed. CMOS is currently installed
at air bases worldwide, and was recently chosen by the Office of the Secretary
of Defense to be the model transportation system for the Department of Defense.
As a result of developing and integrating CMOS, we were recently awarded another
major logistics automation contract to develop a model logistics system to
manage the transportation requirements of all branches of the U.S. armed forces.
On March 7, 1999, we entered into a definitive agreement to acquire A&T. A&T
is a market leader in undersea warfare, acoustics, command and control and
training support and in many instances is a national repository of acoustical
and hydrodynamic technologies. The acquisition will strengthen and broaden our
customer and contract base and will complement our extensive presence as a
leading supplier to the U.S. Navy, combining Anteon's surface ship systems
capabilities with A&T's strength in submarine and undersea warfare. In addition,
this acquisition provides vertical integration of our skill set, enhancing our
ability to provide services across the complete project life-cycle from concept
to implementation to support. A&T's early stage engineering capabilities in
design, requirements analysis and technology development will complement
Anteon's late stage capabilities and track record of executing and integrating
complex technological systems. Finally, the acquisition also expands our
presence at key client locations
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and adds an experienced management team. With the acquisition of A&T, Anteon
will increase its 1999 pro forma revenues and Adjusted EBITDA to $450.8 million
and $35.1 million, respectively. Cash flows used in operating activities on a
pro forma basis were $2.3 million for 1998.
COMPETITIVE STRENGTHS
We attribute our growth and performance to several factors, including the
following:
- BROAD ENGINEERING AND INFORMATION TECHNOLOGY CAPABILITIES. We have
developed comprehensive information technology and engineering expertise
and capabilities over our 22-year history of providing support for
critical applications within the Federal government's military and
intelligence infrastructure. Our employees are highly trained, enabling us
to provide services for many complex governmental systems, including
defense, intelligence, emergency response, logistics support and financial
management.
- LEADING FEDERAL GOVERNMENT SYSTEMS INTEGRATOR AND STRONG REPUTATION. We
believe that the Federal government primarily uses three criteria in
seeking suppliers of technical systems and services: the ability to
deliver a broad range of sophisticated technical capabilities; a track
record of excellence in servicing the needs of the Federal government; and
the ability to deliver at a competitive price. Based on these criteria, we
have developed a reputation as a premier provider to the Federal
government and we have received numerous awards for our broad technical
expertise and consistently high quality performance. We were recently
ranked as the No. 1 systems integrator in a survey of over 1,200 Federal
government customers by FEDERAL COMPUTER WEEK, a leading publication in
the Federal government information technology sector. We believe that our
demonstrated capabilities and reputation for service excellence have
allowed us to maintain our position as an incumbent service provider on
100% of our major contracts that have been recompeted over the past three
years.
- DIVERSE CUSTOMER AND CONTRACT BASE; STRONG INCUMBENT POSITIONS. We have a
diverse customer base with hundreds of governmental clients worldwide,
which has included all 14 Cabinet-level agencies and all branches of the
military. In 1998 we performed work on approximately 3,000 task orders,
and since 1996 we have completed approximately 7,000 task orders for our
clients. In executing these orders, we have acquired extensive knowledge
of the particular information technology needs of our clients, and we
believe that our typical position as the incumbent designer and integrator
enables us to anticipate their changing technical requirements. These
factors often position us as the preferred provider of ongoing support,
upgrades and next generation systems development. As a result of these
relationships we have developed a backlog of approximately $1.1 billion
(and, after giving pro forma effect to the Acquisition, a backlog of $2.1
billion as of June 30, 1999, providing significant predictability of
revenues. For a further discussion of management's calculation of our
backlog, see "--Backlog."
- STRONG OPERATIONS MANAGEMENT; LOW COST STRUCTURE. Our focus on control of
indirect costs and cost center flexibility has permitted us to increase
profitability and we believe that we have achieved one of the lowest cost
structures in the industry. Management has developed rigorous control
procedures to mitigate losses in "at risk" situations where task order
performance has commenced but funding or appropriation has not been
formally authorized or where contract performance has begun because
management considers the award of a contract to be imminent. We also
employ management information and resource management systems to maximize
operational efficiency and reduce indirect costs. Our indirect costs have
been reduced to 15% of revenues in 1998 compared to an industry peer group
average estimated by management to be between 18% to 20%, and we have
increased EBITDA margins from 1.9% in 1995 to 6.6% in 1998 (after giving
pro forma effect to the Techmatics acquistion).
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- WELL-POSITIONED TO CAPITALIZE ON INDUSTRY GROWTH. Federal government
information technology spending will total approximately $30 billion in
1999 according to the OMB and is expected to increase to $35.1 billion in
2002. In addition, the outsourced portion of this spending is expected to
increase from 78% in 1998 to 86% in 2002. Due to this increased
outsourcing, the amount of information technology services procured from
contractors is estimated to increase at 6.9% per year from 1998 to 2002.
Anteon believes that growth in Federal government information technology
spending will be driven by government downsizing, increased outsourcing
and increasing attempts to utilize more efficient means of procurement. We
expect a significant portion of this growth to be derived from major
government-wide acquisition contract vehicles, such as the $25 billion GSA
ANSWER multiple-award contract and the $10 billion Department of
Transportation ITOP II multiple-award contract. We are one of a limited
number of qualified suppliers under both of these major contract vehicles.
We believe that our size, capabilities, reputation and long-standing
relationships combined with our position as incumbent supplier to many
Federal government agencies, position us to capitalize on the
opportunities presented by these industry trends.
- STRONG MANAGEMENT AND HIGHLY EXPERIENCED BOARD. Each of the five senior
members of Anteon's management team has over 20 years of experience in
managing both small and large companies in both the defense and commercial
markets. In addition, several members of management and the Board of
Directors are former military officers or senior government officials who
are familiar with the information technology requirements of government
agencies. Dr. Paul Kaminski, a director of Anteon, recently served as
Under Secretary of Defense for Acquisition and Technology. Mr. Gilbert
Decker, a Director of Anteon, recently served as Assistant Secretary of
the U.S. Army for Research, Development and Acquisition, and in that
capacity led the Army's acquisition and procurement reform efforts. Our
management team is responsible for our growth and improved profitability
in the current procurement environment and has a significant equity stake
in Anteon through direct investment and equity-based incentives.
BUSINESS STRATEGY
We believe that a key element of Anteon's success is its high standard of
performance and customer service. Past performance is one of the three critical
elements the government employs to evaluate information technology suppliers.
Our demonstrated performance record and service excellence have enabled us to
maintain our position as an incumbent service provider on 100% of our major
contracts that have been recompeted over the past three years. We believe that
our high-level technical abilities and low cost structure will allow us to
further expand our customer base, improve our operating results and continue to
grow. Specifically, we will pursue the following business strategies:
- BROADEN CAPABILITIES. We continually seek to acquire new expertise and
keep pace with developments in technology by acquiring and training our
employees and acquiring technologies to complement our skill set. We are
aggressively pursuing several new disciplines that complement our existing
technology capabilities. Particular areas of expertise we are pursuing
include network communications, remote sensor information processing,
geographic information systems and information security. We also seek to
broaden our technology skills by providing extensive training to new and
current employees. For example, we have an extensive in-house,
computer-based training program consisting of over 150 courses. These
efforts will enable us to remain at the forefront of information
technology applications and be more responsive and flexible in servicing
the needs of our customers.
- LEVERAGE EXPERIENCE AND REPUTATION TO EXPAND MARKET SHARE. We have
performed a variety of services for a diverse base of customers, including
hundreds of governmental clients worldwide, including all Cabinet-level
agencies and all branches of the military. The new Federal government
procurement environment has reduced the number of suppliers and favors
those companies with experience and broad capabilities. We plan to
leverage our comprehensive capabilities and our
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position as the incumbent provider on critical Federal government
applications to provide complete end-to-end services including new systems
development, integration, upgrades, maintenance, support and training. To
support our plans, we have increased our national and global presence,
opening offices in Albuquerque, New Mexico; Colorado Springs, Colorado;
Australia and Asia. We have also acquired a comprehensive new business
development and bidding software system, known as WinAward, which scans
for and targets new programs or task orders which require skills and
services particularly suited to Anteon's capabilities. This system
provides early identification of prospects, allowing us to mobilize the
resources necessary to win the award.
- CONTINUE TO IMPROVE OPERATING AND FINANCIAL PERFORMANCE. We believe that a
key element of our success in the Federal government market has been our
continuous pursuit of cost reductions and focus on working capital
management. We have developed and employ integrated management information
and resource management systems and policies that have enabled us to
maintain indirect cost levels that we believe are among the lowest in the
industry. We will continue to leverage our operating efficiency and risk
management capabilities to bid aggressively on contracts to further
improve our operating and financial performance.
- PURSUE STRATEGIC ACQUISITIONS. We believe the changes in the government
procurement market will result in continuing consolidation opportunities.
We will selectively review acquisition candidates with a focus on
companies having complementary skills and established positions in key
segments of the marketplace that provide opportunities for revenue
enhancement or a reduction in indirect costs. A key element of all
acquisitions is the existence of rigorous risk management procedures and
strong operational management.
ANTEON DIVISIONS
We provide our services through five operating divisions (including our
subsidiaries): Techmatics, the Federal Information Technology Group, Vector
Data, the Enterprise Solutions and Services Group and the GSA Programs Group.
The following is a brief description of each of Anteon's divisions and examples
of some of the projects and programs Anteon has performed for its government
clients.
TECHMATICS
Techmatics has over 15 years of experience in supporting U.S. Navy
technology acquisition programs. The Techmatics Division provides systems
engineering and systems development, mission and threat analysis and acquisition
management services to most major ship and weapon system acquisition projects
currently in progress in the U.S. Navy. Techmatics has been a team member in the
development and acquisition of the U.S. Navy's AEGIS cruisers and destroyers,
the U.S. Navy's Theater Air Defense strategy and National Missile Defense
planning, as well as the latest submarine, aircraft carrier and amphibious
designs. The division's client base is predominantly the U.S. Navy and includes
approximately 30 customers or agencies within the U.S. Navy. Projects on which
Techmatics is engaged include the Ballistic Missile Defense Program, the Cruise
Missile Defense Program, the Ship Self Defense Program and the Navy Theater Air
Defense program.
- NAVY THEATRE BALLISTIC MISSILE DEFENSE PROGRAM. An example of
Techmatics' work is the service it performed in connection with the
Navy Theater Ballistic Missile Defense Program. In January 1999,
Techmatics was awarded a $63 million five-year IDIQ contract to
provide professional, technical and management services to support the
Navy Theater Ballistic Missile Defense Program. The purpose of the
Ballistic Missile Defense Program is to place on each ship in the
program a defense system that will use missiles on board to counter
and destroy incoming enemy missiles. While the program itself will
cost several billions of dollars and will be developed by major
government defense prime contractors such as Lockheed Martin and
Raytheon, Techmatics supports and advises the U.S. Navy in
implementing this program. In
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this capacity, Techmatics works in close partnership with U.S. Navy
departments in evaluating alternatives on systems engineering, systems
requirements, software and hardware. Management believes Techmatics,
with its long history of technical support on naval projects and large
number of experienced former naval officers, is well-positioned to
fill this role for the U.S. Navy.
Techmatics' extensive experience on earlier U.S. Navy projects allowed
us to develop the expertise and establish relationships necessary to
bid successfully for the Navy Theater Ballistic Missile Defense
Program. Techmatics was solicited to make a bid and, because of our
longstanding incumbent position and institutional knowledge,
Techmatics was the only contractor to bid for the project. Because of
these relationships, Techmatics was also recently selected to provide
systems engineering support for the next generation destroyer, the new
attack submarine and the aircraft carrier programs. We believe that
due to our established relationships and track record with the U.S.
Navy, we have a competitive advantage when bidding for
similar projects in the future.
- U.S. NAVY AEGIS PROGRAM. AEGIS is largely considered to be the world's
most advanced air defense system, and is composed of over 50 cruisers
and destroyers equipped with a sophisticated computer controlled
missile engagement system. The heart of the AEGIS capability is a
multifunction, phased array radar system. Due to the solid reputation
AEGIS has developed, the AEGIS Combat System has also been installed
on four Japanese Maritime Self Defense ships and the Spanish Navy is
building AEGIS equipped ships. Techmatics supports all aspects of this
program, including ship design, construction and maintenance; AEGIS
Combat System engineering and testing; and the engineering and
introduction of a Theater Ballistic Missile Defense capability in
AEGIS. Recently, the AEGIS programs were merged with all surface ship
air defense efforts in the Program Executive Office for Theater
Surface Combatants. Techmatics provides engineering and technical
support to this consolidated organization.
FEDERAL INFORMATION TECHNOLOGY GROUP
The Federal Information Technology Group focuses on providing information
technology services to the U.S. Army, U.S. Air Force, Defense Finance and
Accounting Service, Federal Emergency Management Agency ("FEMA"), Bureau of
Indian Affairs and selected additional government and commercial organizations.
The division provides system integration and full end-to-end information
technology services. The division provides its services through multiple
contract vehicles including GSA Schedule, GSA CAPZONE, GSA ANSWER and Department
of Transportation ITOP. Within these contract vehicles, we execute our work
through hundreds of contracts or task orders.
- FEDERAL EMERGENCY MANAGEMENT AGENCY. An example of the services our
Federal Information Technology Group provides is our support for FEMA.
FEMA works in coordination with state and local government to provide
a federal response to emergencies, such as tornadoes, hurricanes,
earthquakes or fires). In 1995, FEMA hired Anteon to develop a system
to assist it in managing disaster operations on-site at its regional
offices and at its headquarters. In response, Anteon developed the
National Emergency Management Information System ("NEMIS"). NEMIS is
an enterprise-wide Oracle-based client/server management information
system that connects several thousand desktop and mobile
terminals/handsets and provides FEMA with a fully mobile, nationwide
response and disaster management system. Anteon worked with FEMA over
a 2 1/2-year period to build NEMIS. Over 100 analysts and software
technicians were involved in all major aspects of designing and
implementing this project. To date, the Federal government has spent
approximately $70 million on the development of NEMIS Version 1. Our
work on NEMIS Version 1 was critical to our success in being chosen to
develop NEMIS Version 2, a project which is expected to have a budget
of approximately $6 million per year. In addition, we continue to
provide support and maintenance to NEMIS
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Version 1 under a five-year $28 million contract. The NEMIS system is
the most comprehensive emergency management system available and we
believe there are significant opportunities to sell this system to
individual states and foreign governments.
- CARGO MOVEMENT OPERATIONS SYSTEM FOR THE AIR FORCE. Another example of
Anteon's achievements is its work on the U.S. Air Force CMOS project,
which began as a systems development and integration contract and has
evolved into an end-to-end support relationship. Anteon has been
supporting CMOS since 1989 when its started to develop this mission
critical system for the U.S. Air Force to automate cargo movement
operations. CMOS is one of the largest open systems within the
Department of Defense, and the first standard Air Force client server
application to be installed at air bases worldwide. The CMOS project
involved full systems development, end-to-end support, integration of
COTS systems and custom developed software, configuration management,
maintenance implementation, and training. Anteon continues to provide
support, maintenance and upgrades to CMOS under a multi-year contract.
During the past ten years, Anteon's involvement in CMOS has generated
approximately $25.6 million in revenues. Because of Anteon's track
record as the incumbent services provider for the work performed,
Anteon acts as sole supplier for task orders under this contract.
- TC-AIMS PROJECT. As a result of our record of performance on CMOS, we
have been awarded the Transportation Coordination Automated
Information Movement Systems ("TC-AIMS") contract through the
Department of Transportation ITOP II contract. TC-AIMS is using the
CMOS system as a model to develop a transportation and deployment
management system that will coordinate critical logistics requirements
throughout the Department of Defense. CMOS was chosen as the model
system for TC-AIMS by the Office of the Secretary of Defense. While
TC-AIMS is similar in function to CMOS, it will have broader
capabilities and will be used in one single combined system with other
service systems. TC-AIMS will also be used for the redeployment and
recovery of troops and equipment. Anteon currently has approximately
46 people working on the TC-AIMS contract.
VECTOR DATA
Vector Data provides systems engineering including what is known in the
defense industry as command, control, computers, communications, intelligence,
surveillance and reconnaissance ("C(4)ISR") services to national and
international defense organizations. Vector Data provides services and support
worldwide for NATO and other coalition warfare, strategic and tactical
communications, imagery exploitation and mission rehearsal from the beginning
stages of a program through its entire life. The division's client base
includes, among others, the U.S. Department of Defense, NATO and the U.K.
Ministry of Defense. Vector Data's support of C(4)ISR systems such as Linked
Operations/Intelligence Centers Europe ("LOCE") has been critical in providing a
common structure and set of standards that allow for the rapid distribution and
exchange of tailored intelligence data to support coalition operations in peace,
crisis and war.
- LINKED OPERATIONS/INTELLIGENCE CENTERS EUROPE PROGRAM FOR NATO. Vector
Data provides on-site maintenance support to the LOCE program. The
LOCE program provides a common view of intelligence derived from
multiple sources for the United States, NATO and U.N. peacekeeping
forces in Europe. Near-real time intelligence is available through
such technology as imagery, shared early warning systems, and
interfaces with other U.S. and NATO systems. We support the LOCE
program by providing software and hardware maintenance, communications
engineering, formal classroom and on-site training, and
hardware/software configuration management. We also provide
responsive, on-site daily customer service from the U.S., Italy, U.K.,
and Germany. Vector Data is in its third contract on this project and
is currently the sole-source provider.
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ENTERPRISE SOLUTIONS AND SERVICES GROUP
The Enterprise Solutions and Services Group is a multifunctional division
which includes four groups; the Dayton Operation, the Product Applications and
Services Operation, the Business Development Group and the Proposal Development
Group. Our Dayton Operation conducts materials science research and development
efforts and covers the spectrum of basic research and exploratory and advanced
development efforts for the Air Force's Research Laboratory. The Product
Applications and Services Operation sells a wide variety of products, such as
Oracle's latest database and applications software, and maintenance and other
services and training to the Federal government through Anteon's GSA Schedule
contract. The Business Development Group is responsible for generating new
business for Anteon and the Proposal Development Group is responsible for
preparing new proposals for all of Anteon's operating groups.
- WRIGHT PATTERSON AIR FORCE BASE. Our Dayton Operation has helped to
design, build and operate the largest continuous wave gas laser in the
United States, located at Wright Patterson Air Force Base. At the
material engineering laboratory, we conduct test and evaluation
services. Our expertise includes manufacturing processes, materials,
and coating technologies. In the area of program management, we are
the lead agent for cooperative efforts between industry and the
Federal government. Through our information dissemination and
brokering service, we inform prospective users of newly developed
technologies and facilitate the establishment of beneficial
relationships between government agencies and private industry. We
also provide program and acquisition services which include
acquisition planning documentation, program management support,
specification and standards development, database design and
development, participation on electromagnetic compatibility advisory
boards and frequency allocation application support.
GSA PROGRAMS GROUP
The GSA Programs Group consists of more than 500 individuals providing
information technology services on approximately 300 task orders to a wide
variety of customers in the western U.S. through one or more of our GSA
contracts or our GSA Schedules. Our client base includes, among others, the U.S.
Navy, Army, Corps of Engineers, Air Force, the Environmental Protection Agency,
the GSA and Department of Interior.
- GSA ADVANTAGE! The GSA Programs Group developed the GSA ADVANTAGE!
system which is an Internet-based electronic ordering system used by
government purchasing officials to buy goods and services from GSA
Schedules. Anteon is providing the technical support to design,
implement and maintain GSA ADVANTAGE!, which provides an automated
service procurement system for the GSA schedule program and will
support approximately 1,500 vendors and over 1,000,000 schedule line
items.
- U.S. NAVY'S SITE CHARACTERIZATION AND ANALYSIS PENETROMETER SYSTEM.
Another example of the type of services provided by the GSA Programs
Group is the engineering and information technology support provided
to the U.S. Navy's Site Characterization and Analysis Penetrometer
System ("SCAPS") since 1994. The SCAPS is an innovative technology
developed by the Naval Command, Control and Ocean Surveillance
Center--Research and Development. Anteon geologists use SCAPS to
rapidly characterize subsurface conditions at sites for real-time data
processing of on-site evaluations.
A&T DIVISIONS
A&T provides its services through two operating divisions, the
Engineering/Information Technology division and Interactive Media Corp. The
following is a brief description of each of A&T's divisions and examples of some
of the projects and programs A&T has performed for its government customers.
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E/IT DIVISION
The E/IT division consists of three groups, the Systems Technology Group,
the Engineering Techology Group and the Information Technology Group, which are
primarily organized according to functional capabilities and customer focus. The
Systems Technology Group provides expertise in undersea warfare through full
end-to-end services, including requirements definition, combat system
engineering, test and evaluation, production and support. The Engineering
Technology Group and the Information Technology Group each provide technical
expertise in key technology areas such as ship signature modeling, signal
processing, smart product modeling, and development of tactical decision aids.
In 1998, the E/IT division had revenues of approximately $140 million.
SYSTEMS TECHNOLOGY GROUP
The Systems Technology Group has provided the full spectrum of engineering
and analytical services primarily to the Naval Undersea Warfare Center for more
than three decades. Over the years, its customer focus has been expanded to
include U.S. Navy Systems and Operations commands. Additionally, through A&T's
purchase of Command Control, Inc., the Systems Technology Group has leveraged
its naval C(4)ISR experience into other branches of the armed forces. While the
group has expanded its reach, the NUWC remains a key customer. The Systems
Technology Group has the capability to provide end-to-end services to meet
customer requirements including (1) requirements definition; (2) systems
engineering and integration; (3) testing and evaluation; and (4) support.
- NEW ATTACK SUBMARINE'S COMBAT SYSTEM. An example of the work of the
Systems Technology Group is the services it provides for detailed
mission analysis, translating operational requirements into functional
specifications in support of the Combat System for the New Attack
Submarine ("NSSN"), the next generation of attack submarine. This
subcontract currently generates annual revenues of approximately $3.6
million, and expires in 2002. Management believes A&T is well
positioned for a follow-on effort to develop a full-scale mock-up of
the NSSN's Combat System, in order to model and evaluate the system's
ability to support rapid reconfiguration and the infusion of COTS
technology.
- C(3)I ENGINEERING SERVICES--NAVAL UNDERSEA WARFARE CENTER. An example
of the services provided by A&T is the contract awarded to A&T by
NUWC. This contract award continues A&T's longstanding relationship
with NUWC in support of the next generation of submarines. Under this
award, A&T is providing engineering support services for Seawolf
non-propulsion systems and the New Attack Submarine's command,
control, communications and intelligence systems ("C(3)I"). A&T's
services range from concept development through operational support,
including design, development and equipment prototyping. This contract
is the latest in the evolution of NUWC's C(3)I initiatives and
demonstrates A&T's longstanding support to this program. A&T was
awarded this $33 million cost-plus contract in April 1996. The current
contract term extends through April 2001.
- FLEET TECHNICAL SUPPORT CENTER ATLANTIC ("FTSCA"). Another example of
services the Systems Technology Group provides is in-service
engineering. This service addresses the end-to-end maintenance and
support of deployed systems, including installation support, system
modernization, equipment modification and field service repair. The
U.S. Navy is increasingly outsourcing these activities and A&T has
been awarded a five-year $130 million cost-plus contract with the
FTSCA. A&T's contract with the FTSCA is its largest single prime
contract. A&T will provide equipment installations, inspections,
testing and modernization upgrades, as well as training, for equipment
on board both surface ships and submarines of the Atlantic Fleet.
Consistent with the U.S. Navy's procurement demands and demonstrative
of A&T capabilities,
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many of the system modernization upgrades will involve the
implementation of COTS technologies. The contract strategically
positions A&T to obtain significant follow-on work in the growing
fleet support area. This IDIQ contract expires in September 2003.
- ACOUSTIC SIMULATION AND TACTICS--NAVAL RESEARCH LABORATORY. A&T also
provides the Naval Research Laboratory's Stennis Space Center with
software development services for gathering, analyzing, classifying
and deploying time-sensitive data across the internet using electronic
documentation. In addition, the division is developing prototype
communication software in support of the U.S. Navy's IT-21 initiative
that will incorporate COTS technology to speed solutions to the fleet.
Software engineers will code programs to convert scientific papers and
publications to digital documents, and then deploy the documents over
the internet for easy access by all registered users. A&T was awarded
this five-year $21.1 million cost-plus contract in March 1998.
ENGINEERING TECHNOLOGY GROUP
The E/IT division's Engineering Technology Group strategically combines ship
design and engineering and combat systems engineering expertise with acquisition
and program management support services to further A&T's strategy of positioning
the division as a provider of end-to-end services for technology solutions. This
combination of services allows A&T to successfully exploit the knowledge gained
from the day-to-day management of high profile U.S. Navy programs to capture
high-end ship design and engineering and combat systems engineering work.
Management believes that the Engineering Technology Group has a strong
reputation in both engineering and support services by U.S. Navy agencies, ship
builder and combat system platform prime contractors for its comprehensive
abilities.
- TECHNOLOGY TRANSFER AND POWER ELECTRONIC BUILDING BLOCK ("PEBB")
PROGRAMS--OFFICE OF NAVAL RESEARCH ("ONR"). An example of the work of
the Engineering Technology Group is the service it provides to ONR's
Technology Transfer and PEBB Programs. The Technology Transfer
program's goal is to transition technology developed in U.S. Navy
research and development programs to the fleet and to private
industry. The objective of the PEBB program is to reduce new ship
construction costs as well as maintenance costs by providing a smart
multifunction device that interfaces between the ship's machinery,
systems and power supply. To facilitate this, A&T's machinery research
and development engineers are designing and developing a new class of
programmable electronic power modules for shipboard power control and
conversion. This includes providing engineering support from
requirements definition to design, development, prototyping and device
fabrication and installation. The PEBB contract was awarded in April
1997, expires in March 2002 and has a total contract value of $26
million.
- ADVANCED SIGNATURE REDUCTION--NAVAL SURFACE WARFARE CENTER ("NSWC").
The Engineering Technology Group has enjoyed a long-standing
relationship with the NSWC that spans more than two decades. NSWC is
currently one of A&T's top-five customers. A&T's most recent work for
NSWC includes a $22.7 million cost-plus contract to perform high level
theoretical and applied research to reduce various signatures in
combatant ships. Studies will be directed primarily at the New Attack
Submarine and the first ship commissioned under the U.S. Navy's SC-21
initiative, the destroyer class DD-21. This contract demonstrates
A&T's ship design capabilities. This award will allow the Engineering
Technology Group to perform work on passive and active vibration and
acoustic control systems for the U.S. Navy, as well as other advanced
critical ship signature design issues in the areas of radar cross
section and magnetics. The contract was awarded in 1998 and expires in
2003.
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INFORMATION TECHNOLOGY GROUP
A&T has a long history of providing information technology services. The
Information Technology Group specializes in developing tactical decision aids
primarily for the U.S. Navy. Its attractive capabilities include (1) software
development, (2) telecommunications/networking, (3) database systems, (4) COTS
product integration, (5) training, (6) simulation and (7) modeling and data
fusion. The Information Technology Group helps customers improve the capability,
responsiveness, and reliability of their systems through advanced network
architectures and user friendly software platforms.
- SENSOR PERFORMANCE PREDICTION SUPPORT--THE ADVANCED SYSTEMS TECHNOLOGY
OFFICE OF THE NAVAL SEA SYSTEMS COMMAND ("NAVSEA"). A&T is providing
COTS solutions to develop a high-technology graphical user interface
("GUI") for the Advanced Systems Technology Office of NAVSEA. A&T has
helped to set the standard for GUI, focusing on ways to make an array
of complex information easy to interpret. As the U.S. Navy rolls out
its information technology for the 21st Century initiative, system
operators will be inundated with large quantities of information.
A&T's work under this contract helps to assure that this information
is instantaneously processed and presented in a readily useable
format. This $33 million cost-plus contract currently generates
approximately $5 million in revenues per year and expires in March of
2001.
- REAL-TIME DISTRIBUTION AND DYNAMIC MANAGEMENT OF METEOROLOGY AND
OCEANOGRAPHY ("METOC") DATABASE PRODUCTS--NAVAL RESEARCH LABORATORY.
A&T was also selected by the Naval Research Laboratory to perform
research and development on the METOC database, a system that reduces
event-triggered human decision errors. A&T is working to improve the
efficiency of the Naval Research Laboratory's data architecture
focusing on information availability and clarity. Under this $14.6
million cost-plus contract, the group has designed proprietary
data-mining techniques that enable users to extract data quickly and
in an organized fashion. As a result of A&T's work, the METOC system
was selected by NATO as the standard for the Allied forces'
environmental analysis systems. A&T was awarded this contract in July
1996 and it runs through July 2001.
INTERACTIVE MEDIA CORP.
IMC has approximately 235 technical specialists providing custom training
and performance solutions across all major computer platforms and delivery
systems. Capitalizing on its reputation, IMC has established leading positions
in telecommunications and financial services as well as in the rapidly growing
web-based training market. Currently over 50% of IMC's revenues involve
web-based training.
IMC has many years of consulting, performance improvement and training
services experience. Since 1990, IMC's personnel have developed over 3,500 hours
of interactive media courseware. IMC's skilled computer programmers and
consultants use web-based delivery systems and multimedia technology, including
computer generated graphics, animation, full motion video and high fidelity
audio to develop training solutions that are both educational and expedient to
the end user. The unit's multimedia technologies are platform and tool
independent, allowing them to be easily integrated into any company's computer
environment.
- US WEST COMMUNICATIONS ("US WEST"). An example of IMC's work is the
service it provides to US West. IMC was awarded a fixed-price $1.1
million contract by US West. Under this contract, IMC will develop an
intranet-based training program that will distribute 118 hours of
interactive media based training to US West's national sales force. An
integral part of this initiative is IMC's KNOWLEDGE BANK, a program
that focuses on the need for quick reference tools to enhance
productivity and facilitate learning. IMC technicians and software
engineers have developed an interactive program that catalogs
frequently referred to subjects and makes
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them available over US West's corporate intranet for quick access by
all members of the sales staff.
- REGIONAL TELEPHONE COMPANY OPERATIONS CURRICULUM: INTERNET-BASED
TRAINING. IMC was also recently contracted by a large regional
telephone company to provide an effective, multi-platform solution
that both reduces classroom time and teaching materials and provides
an on-line reference tool in accordance with the telephone company's
program. Under this contract, IMC consultants developed a unique model
that eliminates redundant course materials and provides trainees with
information via three proprietary delivery methods: orientation/
foundation courses; job specific courses; and online reference tools.
For this effort, IMC developed a CD-ROM based training program for
courses containing general company information and an updatable
internet based training system for courses with job specific content.
By developing a system that documents job specific content
electronically, the student is able to access information on a
just-in-time basis, thereby reducing the time spent in training by
over 30%.
CONTRACT PROFILE
ANTEON
Anteon is one of a select group of qualified suppliers of information
technology services to the Federal government under multiple long-term contract
vehicles. Anteon performed work on approximately 7,000 task orders under such
contracts in the past three years and we are performing work on approximately
3,000 task orders. No one task order accounted for more than 5% of total 1998
revenues. In 1998, approximately 47%, 34% and 19% of Anteon's revenues were
generated by time and materials contracts, cost-plus contracts and fixed price
contracts, respectively.
Management believes that Anteon has secured a place as a prime contractor or
a subcontractor for every major government-wide acquisition contract issued
since January 1996. We have been awarded two major contracts as a prime
contractor since the second quarter of 1998. The GSA ANSWER contract is a
10-year multiple-award contract with an overall contract value of $25 billion.
We were previously the incumbent supplier on task orders under the predecessors
to this contract vehicle (GSA PACZONE and CAPZONE). The Department of
Transportation ITOP II contract is a 7-year multiple-award contract with an
overall contract value of $10 billion. The ITOP II contract was awarded to 14
prime contractors, including Anteon.
A&T
A&T also maintains a diversified contract base with no one contract
accounting for more than 5% of total 1998 revenues. In fiscal year 1999,
approximately 71%, 20% and 9% of A&T's revenues were generated by cost-plus
contracts, fixed price contracts and time and materials contracts, respectively.
However, in October 1998, A&T won a $130 million five-year contract from the
FTSCA, its largest win ever, which represents a significant future growth
opportunity. Over 80% of A&T's work is performed as a government prime
contractor, much of it for the U.S. Navy. Within the E/IT division,
approximately 80% of its work is performed on a cost-plus basis. Within IMC,
most work, both commercial and government, is done on a fixed price basis.
CONTRACTUAL RISK MANAGEMENT
At each stage of the contracting process, we attempt to reduce financial and
performance risks. At the pre-award stage, we frequently bid through teaming
agreements with other contractors having complementary technical strengths that
enhance the likelihood of winning the contract, including, in many instances,
our main competitors. Sometimes, before a Federal government agency has actually
signed or begun funding for services under a contract or task order, our
employees will begin providing services. We have
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internal procedures in place to ensure that such "at risk" provisions of
services only occur when funding is delayed due to bureaucratic or other
technical reasons and it remains highly probable that we will ultimately receive
funding.
Once we win a contract or task order, we assign a program manager and, at a
lower level, a task leader, to ensure timely and high quality performance of
services. Program managers are given access to our financial management
information systems to assist them in making sure that our incurred costs do not
exceed funded costs under our contracts and task orders. Program managers also
constantly interface with our customers to ensure their needs are being
satisfied.
BACKLOG
Anteon and A&T, like most of their competitors, possess a substantial
backlog of several hundred contracts that provide multi-year revenues. Most of
our contracts are operational over a one to ten-year period. In the past, we
have generally been successful in substantially expanding the scope and size of
our principal contracts. Pro forma for the acquisition, our estimated total
contract backlog as of June 30, 1999 was $2.1 billion with an additional $155
million of bids outstanding and over $1 billion of identified bid opportunities.
These backlog amounts consist of "funded" backlog which is based upon
amounts actually appropriated by a customer for payment of goods and services
and "unfunded" backlog which is based upon management's estimate of the future
potential of our existing contracts to generate revenues for Anteon and A&T.
Because the Federal government operates under annual appropriations, agencies of
the Federal government typically fund contracts on an incremental basis.
Accordingly, a significant portion of our total contract backlog is not
"funded." Funded backlog generally varies depending on procurement and funding
cycles and other factors beyond our control. Accordingly, period-to-period
comparisons are difficult and not necessarily indicative of any future trends in
revenues.
Anteon's and A&T's ability to significantly increase their backlogs during
recent years is the result of their successful track records of maintaining
their respective positions as the incumbent service providers on their contracts
as well as success in winning new business. During 1998, Anteon's and A&T's bid
recompete success rates were 100% and 90%, respectively. Set forth in the table
below is a summary of the aggregate dollar amount of (1) contracts that Anteon
and A&T have retained in competitive rebidding processes and (2) new contracts
attained by each of them from 1996 to 1998.
RECOMPETE WINS AND NEW BUSINESS WINS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C>
RECOMPETE WINS
Anteon........................................................................... $ 56.5 $ 232.0 $ 949.6
A&T.............................................................................. 71.1 124.9 85.2
--------- --------- ---------
Subtotal......................................................................... $ 127.6 $ 356.9 $ 1,034.8
NEW BUSINESS WINS
Anteon........................................................................... $ 85.0 $ 150.5 $ 119.2
A&T.............................................................................. 25.0 222.2 273.4
--------- --------- ---------
Subtotal......................................................................... $ 110.0 $ 372.7 $ 392.6
--------- --------- ---------
Total........................................................................ $ 237.6 $ 729.6 $ 1,427.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
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CUSTOMERS
We are one of a select group of qualified suppliers of information
technology services to the Federal government. Domestically, Anteon and A&T
service more than 60 agencies, bureaus and divisions of the U.S. Federal
government, Cabinet-level agencies and all branches of the military services,
which customers provide approximately 93% of Anteon's and A&T's aggregate
revenues. State and local governments, international clients and the commercial
sector provide the remaining 7%. Anteon performed work on approximately 3,000
task orders in 1998 under several hundred contracts. A&T also has a diverse
contract base with over 100 contracts. In particular, Anteon and A&T have an
established track record of providing quality services to the U.S. Navy.
Together, Anteon and A&T maintain contracts with approximately 30 different U.S.
Navy organizations. These organizations independently contract for our services
and generate, after giving pro forma effect to the acquisition, approximately
51% of Anteon's and A&T's combined 1998 revenues. The GSA, the Environmental
Protection Agency and FEMA are Anteon and A&T's largest civil government
customers.
Approximately 66% of IMC's revenues were generated from commercial
customers. These customers include FORTUNE 500 companies primarily in
telecommunications, financial services and information technology. IMC has
developed training systems for companies such as MCI Worldcom, Ameritech, GTE,
Royal Bank of Canada, National City Bank, SmithKline Beecham and Merck.
COMPETITION
The Federal information technology and engineering services industries are
comprised of a large number of enterprises ranging from small, niche-oriented
companies to multi-billion dollar corporations with a major presence throughout
the Federal government. Because of the diverse requirements of Federal
government clients and the highly competitive nature of large Federal
contracting initiatives, corporations frequently form teams to pursue contract
opportunities. Prime contractors leading large proposal efforts select team
members on the basis of their relevant capabilities and experience particular to
each opportunity. As a result of these circumstances, companies that are
competitors for one opportunity may be team members for another opportunity.
Anteon frequently competes against well-known firms in the industry as a
prime contractor. Obtaining a position as either a prime contractor or
subcontractor on large government-wide contracting vehicles is only the first
step to ensuring a secure competitive position. Competition then takes place at
the task order level, where knowledge of the client and its procurement
requirements and environment is the key to winning the business. We have been
highly successful in ensuring our presence on contracts and GSA Schedules, and
in competing for work under those contracts. Through the variety of contractual
vehicles at our disposal, as either a prime contractor or subcontractor, we have
the ability to market our services to any Federal agency. Because of our
extensive experience in providing services to a diverse array of Federal
departments and agencies, we have first-hand knowledge of our clients and their
goals, problems and challenges. We believe this knowledge gives us a competitive
advantage in competing for tasks and positions us well for future growth.
A&T's core Department of Defense market is comprised of a small number of
large players with a diverse portfolio of services from automated data
processing services to outsourcing capabilities, as well as a large number of
smaller firms with specialized capabilities. Management believes that A&T is
well-positioned to remain competitive in this market and to sustain its growth
trends.
EMPLOYEES
Anteon employs approximately 2,200 personnel, representing a highly trained
and technically proficient work force. These employees support hundreds of
national and international clients from our headquarters in Fairfax, Virginia,
and from 39 offices worldwide. Our workforce is highly educated and experienced
in the defense and intelligence sectors. Functional areas of expertise include
engineering,
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computer science, business process reengineering, logistics, transportation,
materials technologies, C(4)I, avionics, finance and acquisition management.
None of Anteon's employees is represented by collective bargaining agreements.
Management believes its relationship with its employees is very good.
A&T employs approximately 1,700 full-time employees, approximately 1,400 of
whom are professional and technical personnel. A&T's highly talented scientists,
engineers and technicians are experts in signal processing, acoustics, ship
survivability and hydrodynamics. A&T's information technology professionals are
experienced in software engineering and development, system integration,
networking and training. A&T has invested significant resources assembling a
team of respected software engineers specializing in high-level systems
architecture, client/server applications and object-oriented programming. None
of A&T's employees is represented by collective bargaining agreements.
Management of A&T believes its relationship with its employees is very good.
FACILITIES
Anteon's corporate offices are located in leased facilities in Fairfax,
Virginia. Anteon also leases approximately 411,602 square feet of office, shop
and warehouse space in 39 facilities across the United States, United Kingdom,
South Korea and Australia.
A&T owns its corporate headquarters located in North Stonington,
Connecticut, which occupies 60,330 square feet of office space. A&T also owns
office and shop space in New London, Connecticut and Butler, Pennsylvania. A&T
presently subleases to tenants approximately 23,000 square feet of its Butler
office space and 20,000 square feet of its New London office space.
A&T also leases approximately 357,000 square feet of office, shop and
warehouse space in 36 locations across the United States, Australia, and Canada.
LEGAL MATTERS
Anteon received a demand letter from one of Anteon's subcontractors claiming
approximately $3.2 million in damages arising in connection with Anteon's
decision to terminate the subcontractor. The termination was a result of certain
actions taken by Anteon's customer. Anteon believes there are valid defenses to
such claim and that the matter will not have a material adverse affect on
Anteon's financial condition, results of operations or cash flow. Neither Anteon
nor A&T is involved in any other material legal proceedings except for ordinary
routine litigation incidental to its business which is not otherwise material to
its business or financial condition. From time to time, we or our competitors
file bid protests, as permitted under Federal procurement regulations, in
connection with specific contract awards. Historically, these proceedings have
not had any material effect on Anteon's financial condition, results of
operations or cash flow. Management is not able to assure you that either
company will not become involved in material legal proceedings or contract bid
protest proceedings in the future.
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OVERVIEW OF FEDERAL GOVERNMENT CONTRACTING
GOVERNMENT BIDDING OVERVIEW
There are several different processes through which a Federal government
agency will solicit bids. The following is a summary of the typical bidding
process which government contractors such as Anteon and A&T encounter. If a
Federal government agency has a requirement, such as the upgrade of a management
information system, the agency makes a brief announcement of its requirements in
the COMMERCE BUSINESS DAILY or on a government electronic bulletin board to
which contractors like Anteon and A&T have access. Interested contractors then
submit packages expressing their interest and highlighting their qualifications.
The agency responds to those contractors it deems preliminarily qualified by
providing them with a request for a proposal ("RFP") or similar solicitation.
The RFP is an extensive document describing the desired services and terms and
conditions that will form the final agency contract. The RFP includes a
statement of the criteria according to which bids will be evaluated (usually
focusing on price, past performance and quality of technical/management plan).
Bidders then submit proposals in response to the RFP. The agency evaluates all
the proposals and announces the winner. This process can take up to a year.
The competitive process for a multiple award contract procurement is similar
to that described above, except that the government awards multiple contracts to
a selected group of contractors, rather than a single contract. Federal agencies
desiring to procure goods and services through a particular multi-agency
contract such as GSA ANSWER, will request the servicing agency (for example,
GSA) to initiate a limited competition among the selected awardees, resulting in
the issuance of a task order to a single contractor. A task order calls for a
specific set of services to be delivered by the contractor to a particular
client agency. Competition for task orders among initial awardees can be intense
and often focuses on price, because the initial awardees are already qualified
to supply the service through the initial award of the government contract
vehicle. However, our experience has been that after winning a task order and
effectively providing the requested services, we will typically receive
successive task orders from the same agency for follow-on services. Our
experience has also been that the key factors in bidding successfully for these
Federal government contracts are technical capabilities, past performance,
competitive prices and reputation, all four of which management believes are
factors that strongly favor both Anteon and A&T.
TYPES OF CONTRACT VEHICLES
The Federal information technology procurement environment has changed
dramatically in recent years. Federal government agencies traditionally procured
information technology solutions through agency-specific contracts awarded to a
single contractor or contractor team. Several statutory and regulatory changes
have significantly altered Federal government procurement practices. The number
of procurement "vehicles" available to Federal government customers to satisfy
their requirements has increased dramatically in recent years. Federal
government agencies are now more likely to use flexible contract vehicles that
permit multiple sources to compete for specific orders. We believe these trends
are likely to continue.
IDIQ contracts are essentially umbrella contracts that set forth the basic
terms and conditions under which the Federal government may order goods and
services from one, and in some cases, more than one, contractor. Such contracts
will also specify the labor and other costing rates that will apply to services
that may be the subject of task orders under those contracts. IDIQ contracts may
be awarded to a single contractor, or to multiple contractors. Multiple-award
IDIQ contracts are increasingly being used for large-scale Federal government
purchases of services and/or integrated systems that may include a significant
service or maintenance component, along with the provision of computer hardware
and software. The periods of performance for IDIQ contracts usually span a base
year and a number of option years. IDIQ contracts do not obligate the Federal
government to purchase goods or services at the maximum levels set forth in the
contract.
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Federal government agencies also frequently purchase information technology
services and products through other contract vehicles such as GSA Schedules. GSA
awards such indefinite quantity fixed price contracts to companies for stated
periods of time through which individual agencies may place orders, receive
shipments and make payments directly to contractors. In order for a company to
provide services under a GSA contract, the company must be pre-qualified and
selected by the GSA. In the information technology service sector the three
ratings criteria employed by the GSA for pre-qualification are technical skills,
price and a history of excellence in government contract administration. Anteon
and A&T both have GSA Schedule contracts.
The changed environment for Federal government contractors presents a number
of challenges for companies like Anteon. In the case of contracts like GSA
Schedule contracts or IDIQ contracts, a substantial amount of marketing must be
done after winning the initial contract in order to win subsequent delivery and
task orders.
Our experience has been that the changed environment for government
contractors has on balance been highly favorable to companies like Anteon that
have a wide range of technological capabilities, are very focused on cost
control and have a high degree of sophistication and experience in government
contracting. First, these more flexible forms of contract vehicles provide for
very sizable revenue generation opportunities. Some of our IDIQ contracts
potentially involve billions of dollars of revenues for awardees. Second, these
vehicles permit us to market our services to a much wider range of customers
than was possible under more traditional contracting vehicles. Third, the
current environment tends to favor entities that have the size and technological
breadth to offer a variety of services because the umbrellas provide for broader
opportunities. Finally, we have found that this environment encourages building
longer term and stable supplier/customer relationships because there are often a
number of contract vehicles under which Federal agencies may be able to direct
work to preferred contractors. This tends to lessen the risks to customer and
supplier of going through recompetes in order to continue to transact business,
and provides a reward for suppliers such as Anteon that establish a reputation
for quality and integrity.
CONTRACT PAYMENT TYPES
The contract vehicles described above employ various payment methodologies.
Contracts are typically referred to as time and materials contracts, cost-plus
contracts and fixed-price contracts. Each of these contract payment types is
described below.
TIME AND MATERIALS CONTRACTS
Some of our largest contracts are negotiated on the basis of time and
materials. Under this type of contract, a contractor is paid a fixed hourly rate
for direct labor hours expended. Labor costs, overhead and profit are included
in the fixed hourly rate. Materials, subcontractors and other direct costs are
reimbursed at actual cost-plus general and administrative expenses and, in some
instances, an agreed-upon percentage of profit. A contractor makes critical
pricing assumptions when proposing fixed labor rates for a time and materials
contract and risks loss of profitability on time and materials contracts if its
actual costs exceed assumed costs made. In 1998, time and materials contracts
accounted for approximately 46.7% of Anteon's revenues, approximately 9.4% of
A&T's revenues, and approximately 32.7% of Anteon's revenues pro forma for the
acquisition.
COST-PLUS CONTRACTS
Cost-plus contracts provide for reimbursement of costs, to the extent that
such costs are allowable, and the payment of a fixed "fee," which is essentially
the profit negotiated between the contractor and the contracting agency.
Cost-plus incentive fee and cost-plus award fee contracts provide for increases
or decreases in the contract fee, within specified limits, based upon actual
results as compared to contractual targets for factors such as cost, quality,
schedule and performance. In fiscal 1998, cost-plus contracts
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accounted for approximately 34.2% of Anteon's revenues, approximately 70.6% of
A&T's revenues, and approximately 47.8% of Anteon's revenues pro forma for the
Acquisition.
FIXED PRICE CONTRACTS
Under fixed price contracts, a contractor agrees to perform specified work
for a fixed-price and, accordingly, risk of performing the contract. In fiscal
1998, fixed price contracts accounted for approximately 19.2% of Anteon's
revenues, approximately 20.0% of A&T's revenues, and approximately 19.5% of
Anteon's revenues giving pro forma effect to the acquisition.
FEDERAL GOVERNMENT RECEIVABLES
Almost all of our accounts receivable is derived from Federal government
agencies. An account receivable from a Federal government agency enjoys the
overall credit worthiness of the Federal government, even though each such
agency is a separate agency with its own budget. Pursuant to the Prompt Payment
Act, payments from government agencies must be made within 30 days of final
invoice or interest must be paid.
REGULATION
The passage of the ITMRA in late 1996 resulted in major changes in Federal
government procurement rules governing the acquisition of information technology
goods and services. The ITMRA changed the government's process for procuring
information technology by (1) placing increased attention on the
cost-effectiveness of information technology, return on investment and
performance and (2) allocating to individual agencies authority and
accountability for information technology budgets. These trends are expected to
result in increased interagency coordination and sharing of expense and fewer
proprietary or single agency solution systems. Companies such as Anteon and A&T
which are well-positioned across several major government agencies should
benefit from these trends. As a result of the ITMRA, multiple-award IDIQ
government-wide contracts as the preferred vehicle for procuring information
technology. Accordingly, contractors have a decreased need for large-scale
investment in bid and proposal activities and an increased need to commit
marketing resources to identify and capture tasks under existing contracts.
Federal government contracts are subject to the Federal Acquisition
Regulations ("FAR") and other agency FAR supplements. Major contracts are also
subject to the Truth in Negotiations Act ("TIN Act") and Cost Accounting
Standards ("CAS"). Among other procurement regulations, the FAR contains the
cost principles for setting contract prices while the TIN Act requires us to
provide current, accurate and complete cost or pricing data in connection with
the negotiation of a contract. CAS requires consistency of accounting practices
over time and compliance with specific cost accounting criteria.
To the extent that a company fails to comply with procurement requirements,
the Federal government may adjust contract prices. Additionally, changes in cost
accounting practice are subject to a required procedure for negotiation of the
cost of the change. The Federal government is protected from paying increased
costs resulting from accounting changes. Finally, the Federal government has the
right to audit contractors for three years after final payment. Such audits are
generally performed by the DCAA. Accordingly, Anteon's revenues are subject to
adjustment.
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THE TRANSACTIONS
THE ACQUISITION
On March 7, 1999, Anteon entered into an agreement and plan of merger to
acquire all of the issued and outstanding shares of A&T common stock at a price
of $26.00 per share. Under the merger agreement, Buffalo Acquisition
Corporation, a Connecticut corporation and wholly-owned subsidiary of Anteon,
merged into A&T and A&T became a wholly-owned subsidiary of Anteon. We completed
the acquisition on June 23, 1999.
IMC CONTINGENT PAYMENT, STOCK OPTIONS AND RETENTION ARRANGEMENTS
IMC, a subsidiary of A&T, acquired all the outstanding stock of UP, Inc.
("UP") under a stock purchase agreement among A&T, IMC and the former
stockholders of UP (the "UP Sellers"), dated as of November 14, 1997 (the "UP
Stock Purchase Agreement").
The UP Stock Purchase Agreement provided for a contingent payment to be made
to the UP Sellers (the "UP Contingent Payment") which became due and payable
upon consummation of the merger. The UP Contingent Payment to all of the UP
Sellers equals, at their election, either (a) 81,100 shares of common stock of
IMC (which would equal 9.1% of the outstanding shares of IMC after issuance but
before exercise of options to purchase IMC stock as described below), (b)
$2,250,000 in cash or (c) a combination of shares and cash which equals the
appraised value of the 81,100 shares of IMC, however, the Sellers may not elect
to receive more than $2,250,000 in cash. The management of A&T believes that it
is likely that the appraised value of the 81,100 shares of IMC will be less than
the cash payment alternative of $2,250,000, and this prospectus assumes that all
the UP Sellers elect to receive cash and are not entitled to receive any shares
of IMC stock by reason of the UP Contingent Payment. In addition, if the UP
Sellers elect to receive cash for the UP Contingent Payment, they will also be
granted options to purchase an additional 81,100 shares of common stock of IMC
in the aggregate at an exercise price of $27.74 per share.
In addition, IMC has issued to certain of its key employees options to
purchase an aggregate of 180,000 shares of common stock of IMC which would
constitute 18.2% of the outstanding shares of stock, after exercise, assuming
that no shares of IMC common stock are issued as part of the UP Contingent
Payment. Under the agreements pursuant to which these options were granted, the
options fully vested upon the consummation of the merger. IMC and A&T have the
right to purchase such options for a purchase price equal to the difference
between the exercise price of the options and a formula price, called the Parent
Company Change in Control Price under such agreements. The exercise price of the
options is $11.78 per share.
IMC has also entered into agreements with certain of its employees pursuant
to which they will be entitled to receive retention bonuses in the aggregate
amount of approximately $800,000 if they are still employed by IMC, A&T or any
successor thereof eighteen months following the consummation of the merger, or
if their employment is involuntarily terminated prior to that date other than
for cause.
NEW CREDIT FACILITY
Anteon entered into the new credit facility with Credit Suisse First Boston,
as administrative agent and advisor and arranger, Mellon Bank N.A., as
syndication agent, Deutsche Bank AG, as documentation agent, and a syndicate of
financial institutions, including CSFB, Mellon and Deutsche Bank. The new credit
facility consists of a $60.0 million term loan facility and a $120.0 million
revolving credit facility. At the closing of the acquisition, Anteon borrowed
$60.0 million under the term loan facility. The undrawn portion of the revolving
credit facility will be available to us for general corporate purposes,
including additional permitted acquisitions and investments. See "Description of
Other Material Agreements--New Credit Facility" for additional information on
the new credit facility.
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EQUITY CONTRIBUTION
Before the acquisition, Azimuth Technologies, Inc., our parent company, an
affiliate of Caxton-Iseman Capital, contributed $22.5 million to our equity. The
equity contribution was funded by persons who are indirectly existing investors
in Azimuth, or their affiliates, through a limited liability company that is
indirectly controlled by Mr. Frederick Iseman.
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MANAGEMENT
The directors and executive officers of Anteon and their respective ages as
of the date of this prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Frederick J. Iseman.................................. 46 Chairman of the Board and Director
Joseph M. Kampf...................................... 54 President, Chief Executive Officer and Director
Noreen Centracchio................................... 54 Group Vice President, GSA Programs Group
Thomas M. Cogburn.................................... 55 Executive Vice President and Chief Operating Officer
and Director
Carlton B. Crenshaw.................................. 54 Senior Vice President, Chief Financial and
Administrative Officer
Ken Guest............................................ 58 Group Vice President, Federal Information Technology
Group
Roger A. Gurner...................................... 57 Group Vice President, Enterprise Solutions and
Services Group
Mark Heilman......................................... 50 Senior Vice President Corporate Development
Joseph Maurelli...................................... 57 President of Techmatics and Director
Seymour L. Moskowitz................................. 67 Senior Vice President
Curtis L. Schehr..................................... 40 Vice President, General Counsel and Secretary
Gilbert F. Decker.................................... 61 Director
Robert A. Ferris..................................... 56 Director
Dr. Paul Kaminski.................................... 56 Director
Steven M. Lefkowitz.................................. 34 Director
</TABLE>
FREDERICK J. ISEMAN has served as Chairman of Anteon since its formation in
April 1996. Mr. Iseman is Chairman and President of Caxton-Iseman Capital, Inc.
(a private investment firm) which was founded by Mr. Iseman in 1993. Prior to
establishing Caxton-Iseman Capital, Inc., Mr. Iseman founded Hambro-Iseman
Capital Partners (a merchant banking firm) in 1990. From 1988 to 1990, Mr.
Iseman was a member of Hambro International Venture Fund. Mr. Iseman is a
director of the following companies: Leisure Link Holdings, Cremascoli Ortho
S.A., Metropolitan T.L.C. Holdings, Inc. and the Advisory Board of Duke Street
Capital. He is a former director of: Franklin Hotel and Investments, Ltd.,
Framleydove Ltd. (Glass's Information Services), Golden Valley LLC, Magnavox
Electronic Systems Corporation Holdings, Inc., Electronic Distribution
Acquisition Company (Deanco), Geowaste, Inc. and Hambro America, Inc. (the U.S.
subsidiary of Hambros PLC). Mr. Iseman received a B.A. from Yale University in
1975.
JOSEPH M. KAMPF has served as Anteon's President and Chief Executive Officer
and a director since April 1996. From January 1994 to 1996, Mr. Kampf was a
Senior Partner of Avenac Corporation, a consulting firm providing advice in
change management, strategic planning, corporate finance, and mergers and
acquisitions to middle market companies. From 1990 through 1993, Mr. Kampf
served as Executive Vice President of Vitro Corporation, a wholly owned
subsidiary of The Penn Central Corporation. Prior to his position as Executive
Vice President of Vitro Corporation, Mr. Kampf served as the Senior Vice
President of Vitro Corporation's parent company, Penn Central Federal Systems
Company, and as Chief Liaison Officer for the group with The Penn Central
Corporation. Between 1982 and 1986, Mr. Kampf was Vice President of Adena
Corporation, an oil and gas exploration and development company. Mr. Kampf
received a B.A. from the University of North Carolina in 1966.
NOREEN CENTRACCHIO has served as Anteon's Group Vice President, GSA Programs
since January 1999. During 1998, she served as Anteon's Vice President,
Corporate Communications. From 1996 to 1998, Ms. Centracchio served as Anteon's
Vice President, Corporate Development. From 1988 to 1996, Ms. Centracchio served
as Vice President and Program Manager for Ogden Professional Services
Corporation, the Predecessor Company. Prior to 1988, Ms. Centracchio was a Vice
President at Group Operations, Inc. for a period of 10 years. Ms. Centracchio
received a B.A. from Adelphi University in 1966.
THOMAS M. COGBURN has served as Executive Vice President and Chief Operating
Officer and a director since April 1996. From 1992 to 1996, he served in the
same capacity at Ogden Professional Services Corporation, the predecessor
company to Anteon. From 1988 to 1992, Mr. Cogburn served as Vice
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President of the Information System Support Division of CACI International, Inc.
Mr. Cogburn's experience also includes 21 years in information systems design,
operation, program management, and policy formulation for the U.S. Air Force.
Mr. Cogburn received a B.B.A. from the University of Texas in 1965 and an M.B.A
from Arizona State University in 1971.
CARLTON B. CRENSHAW has served as Anteon's Senior Vice President, Chief
Financial and Administrative Officer since July 1996. From 1989 to 1996, Mr.
Crenshaw was Orbital Sciences Corporation Executive Vice President, Finance and
Administration, and Chief Financial Officer of Orbital Sciences Corporation (a
commercial technology company). He served in a similar capacity with Software AG
Systems, Inc. from 1985 to 1989. From 1971 to 1985, Mr. Crenshaw progressed from
financial analyst to Vice President of Strategic Planning for the Sperry Univac
division and was Treasurer for Sperry Corporation. Mr. Crenshaw received a
B.B.A. from Southern Methodist University in 1966 and an M.B.A. from New York
University in 1971.
KEN GUEST has served as Anteon's Group Vice President, Federal Information
Technology Group since January 1999. From 1997 to January 1999, he served as
Anteon's Vice President of Defense Programs and Systems. Prior to joining
Anteon, Mr. Guest served 34 years with the U.S. Army, retiring as a Major
General in September 1997. Mr. Guest received a B.A. from North Georgia College
in 1966 and an M.S. from the University of Georgia in 1971.
ROGER A. GURNER has served as Anteon's Group Vice President, Enterprise
Solutions and Services Group since January 1999. From July 1997 to December
1998, Mr. Gurner served as Anteon's Vice President and Director, Business
Development, from June 1996 to June 1997 as Anteon's Vice President and
Director, West Coast Operations, and from January 1996 to June 1996 as Anteon's
Vice President and Director, Information Services Center. Prior to joining
Anteon, Mr. Gurner worked at Oracle Corporation where he served as principal
point of contact for Oracle's Enterprise Engineering Program from 1995 to 1996.
From 1993 to 1995, Mr. Gurner was a Government Program Manager with Xerox
Corporation. From 1987 to 1992, Mr. Gurner was a Program Manager with CACI
International, Inc. Prior to 1987, Mr. Gurner served 23 years with the Air Force
where he held numerous assignments in research and development, nuclear weapons
development and system acquisition. Mr. Gurner received a B.S. from Allegheny
College in 1963 and an M.B.A. from Central Michigan University in 1977.
MARK HEILMAN has served as Anteon's Senior Vice President for Corporate
Development since October 1998. From 1991 to 1998, Mr. Heilman was a partner and
principal of CSP Associates, Inc., where he specialized in strategic planning
and mergers and acquisition support for the aerospace, defense and information
technology sectors. From 1987 to 1991, Mr. Heilman was Vice President and an
Executive Director of Ford Aerospace and Communications Corporation. Mr. Heilman
received a B.A. from the University of Iowa in 1970.
JOSEPH MAURELLI has served as a director of Anteon since July 1998. Mr.
Maurelli currently serves as the President and Chief Executive Officer of
Techmatics. Mr. Maurelli joined Techmatics as a Vice President in 1983, and
became President and Chief Executive Officer of Techmatics in January 1984. From
1967 to 1983, Mr. Maurelli was a senior civilian professional for the U.S. Navy
Department. He has written numerous technical articles and is an active member
of the American Society of Naval Engineers and the U.S. Navy League and
currently serves on the Board of Directors of the Professional Services Council
and the Virginia Opera. Mr. Maurelli received a B.S. from the State University
of New York in 1963 and an M.S. from George Washington University in 1971.
SEYMOUR L. MOSKOWITZ served as a consultant to Anteon beginning in April
1996 and became Anteon's Senior Vice President in April 1997, and is responsible
for strategic planning with an emphasis on current and future technologies.
Prior to joining Anteon, Mr. Moskowitz served as Senior Vice President of
Technology at Vitro Corporation from 1985 to 1994, where he was responsible for
the development and acquisition of technologies and management of Research and
Development personnel and laboratory resources. Prior thereto, Mr. Moskowitz
served as Director of Research and Development for
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Curtiss-Wright Corporation for 30 years. Mr. Moskowitz received a B.S. from the
City College of New York in 1954.
CURTIS L. SCHEHR has served as Anteon's Vice President, General Counsel and
Secretary since October 1996. From 1991 to 1996, Mr. Schehr served as Associate
General Counsel at Vitro Corporation. During 1990, Mr. Schehr served as Legal
Counsel at Information Systems and Networks Corporation. Prior to 1990, Mr.
Schehr served for six years in several legal and contract oriented positions at
Westinghouse Electric Corporation (Defense Group). Mr. Schehr received a B.A.
from Lehigh University in 1980 and a J.D. from George Washington University in
1984.
GILBERT F. DECKER has served as a director of Anteon since June 1997. From
April 1994 to May 1997, Mr. Decker served as the Assistant Secretary of the U.S.
Army for Research, Development and Acquisition. As Assistant Secretary, Mr.
Decker led the Army's acquisition and procurement reform efforts, with an
emphasis on eliminating excessive government requirements throughout the
acquisition process. He also served as the Army Acquisition Executive, the
Senior Procurement Executive, the Science Advisor to the Secretary and the
Senior Research and Development official for the Army. From 1983 to 1989, Mr.
Decker was on the Army Science Board and served as Chairman from March 1987
until the end of his appointment. In the private sector, Mr. Decker has served
as President and Chief Executive Officer of three technology companies,
including Penn Central Federal Systems Company. Mr. Decker received a B.S. from
Johns Hopkins University in 1958 and an M.S. from Stanford University in 1967.
ROBERT A. FERRIS has served as a director of Anteon since April 1996. From
1998, Mr. Ferris has been a Managing Director of Caxton-Iseman Capital, Inc. (a
private investment firm). From 1981 to 1998, Mr. Ferris was a General Partner of
Sequoia Associates (a private investment firm). Prior to founding Sequoia
Associates, Mr. Ferris was a Vice President of Arcata Corporation, a New York
Stock Exchange-listed company. Mr. Ferris currently is a director of Clayton
Group, Inc. and Newell Manufacturing Corporation, as well as several other
privately owned corporations. Mr. Ferris received a B.A. from Boston College in
1963, and a J.D. from Fordham University Law School in 1966.
DR. PAUL KAMINSKI has served as a director of Anteon since June 1997. From
1994 to May 1997, Dr. Kaminski served as the Under Secretary of Defense for
Acquisition and Technology. In this position, Dr. Kaminski was responsible for
all matters, relating to Department of Defense acquisition, including research
and development, procurement, acquisition reform, dual-use technology and the
defense technology and industrial base. Prior to 1994, he served as Chairman of
a technology oriented investment banking and consulting firm. Dr. Kaminski also
served as Chairman of the Defense Science Board and as a consultant and advisor
to many government agencies. Mr. Kaminski received a B.S. from the Air Force
Academy in Colorado in 1964, two M.A. degrees from the Massachusetts Institute
of Technology in 1966 and a Ph.D. from Stanford University in 1971.
STEVEN M. LEFKOWITZ has served as a director of Anteon since April 1996. Mr.
Lefkowitz has been a principal of Caxton-Iseman Capital Inc. (a private
investment firm) since 1993. From 1988 to 1993, Mr. Lefkowitz was employed by
Mancuso & Company (a private investment firm) and served in several positions
including Vice President and as a Partner of Mancuso Equity Partners. Mr.
Lefkowitz received a B.A. from Northwestern University in 1986 and an M.B.A.
from J.L. Kellogg Graduate School of Management in 1987.
BOARD OF DIRECTORS
There are currently eight members of the Board of Directors of Anteon.
COMPENSATION OF DIRECTORS
Some directors of Anteon who are not employees of Anteon are paid an annual
retainer. In 1998, each of Messrs. Decker and Kaminski received a retainer of
$25,250 and Mr. Ferris received a retainer of $25,000. Each director of Anteon
is compensated for expenses incurred in connection with serving as a member of
the Board of Directors.
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EXECUTIVE COMPENSATION
The following table provides you with information on the compensation
awarded to, earned by or paid to the Chief Executive Officer and the four other
most highly compensated executive officers of Anteon whose individual
compensation exceeded $100,000 during the fiscal year ended December 31, 1998
for services rendered in all capacities to Anteon and its subsidiaries. The
persons listed in the table below are referred to as the "Named Executive
Officers."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION -----------------
------------------------------------------------------ NUMBER OF SHARES
OTHER ANNUAL UNDERLYING STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS
- ------------------------------------------------- --------- --------- --------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Joseph M. Kampf.................................. 1998 $ 235,566 $ 200,000 -- --
President and Chief Executive Officer
Thomas M. Cogburn................................ 1998 176,341 82,500 -- 5,000
Executive Vice President and
Chief Operating Officer
Carlton B. Crenshaw.............................. 1998 183,495 92,750 -- --
Senior Vice President, Chief
Financial and Administrative Officer
Seymour L. Moskowitz............................. 1998 150,864 82,500 -- --
Senior Vice President
Roger A. Gurner.................................. 1998 114,222 -- -- --
Group Vice President,
Enterprise Solutions and Services Group
</TABLE>
- --------------------------
(1) No Named Executive Officer received Other Annual Compensation in an amount
in excess of the lesser of either $50,000 or 10% of the total of salary and
bonus reported from him in the two preceding columns.
The following table sets forth certain information regarding options granted
during fiscal 1998 to each of the Named Executive Officers under Anteon's
Omnibus Amended and Restated Stock Option Plan:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
---------------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF SHARES
UNDERLYING % OF TOTAL EXERCISE OR
OPTIONS OPTIONS GRANTED TO BASE EXPIRATION
NAME GRANTED EMPLOYEES IN 1998 PRICE PER SHARE DATE 5% 10%
- ------------------------ ----------------- --------------------- ----------------- --------------- --------- ---------
Joseph M. Kampf......... -- --% $ -- -- $ -- $ --
Thomas M. Cogburn....... 5,000(2) 3.3 37.30 (2) 51,526 113,860
Carlton B. Crenshaw..... -- -- -- -- -- --
Seymour L. Moskowitz.... -- -- -- -- -- --
Roger A. Gurner......... -- -- -- -- -- --
</TABLE>
- --------------------------
(1) The indicated dollar amounts are the result of calculations based on the
exercise price of the options and assume five and ten percent appreciation
rates and, therefore, are not intended to forecast possible future
appreciation, if any, of Anteon's stock price.
(2) Represents options granted under Anteon's Amended and Restated Omnibus Stock
Option Plan.
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The following table sets forth certain information with respect to options
held at the end of fiscal 1998 by each of the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
<S> <C> <C>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---------------------------------------------------- -------------------------- --------------------------------
Joseph M. Kampf..................................... 11,615/17,425 $354,838/$532,334
Thomas M. Cogburn................................... 0/5,000 0/0
Carlton B. Crenshaw................................. 5,607/8,412 171,294/256,987
Seymour L. Moskowitz................................ 17,623/26,438 538,383/807,681
Roger A. Gurner..................................... 0/0 0/0
</TABLE>
- --------------------------
(1) Based on the difference between the latest per share market value
calculation on December 8, 1998 for Anteon's common stock, which was $37.30
per share, and the option exercise price. The above valuations may not
reflect the actual value of unexercised options, as the value of unexercised
options will fluctuate with market activity.
OMNIBUS STOCK PLAN
In January 1997, the Board of Directors adopted, and Anteon's sole
stockholder approved, Anteon's Omnibus Stock Plan and on April 3, 1998 the Board
of Directors adopted, and Anteon's sole stockholder approved, Anteon's Amended
and Restated Omnibus Stock Plan (as amended, the "Plan") which enables Anteon to
make grants of stock-based incentive compensation to officers and other key
employees and consultants of Anteon and its subsidiaries. The purposes of the
Plan are to promote the long-term growth and profitability of Anteon and its
stockholders by (i) providing key people with incentives to improve stockholder
value and to contribute to the growth and financial success of Anteon and (ii)
enabling Anteon to attract, retain and reward the best available persons for
positions of substantial responsibility. The principal provisions of the Plan
are summarized below. This summary, however, does not purport to be complete and
is qualified in its entirety by the terms of the Plan, which may be obtained
from Anteon upon request.
The Plan is administered by the Board of Directors or, in the alternative, a
committee (the "Committee") appointed by the Board of Directors consisting of
not less than three members of the Board of Directors to administer the Plan on
behalf of the Board, subject to such terms and conditions as the Board may
prescribe. The members of the Committee are required to be both "Non-Employee
Directors" (within the meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934) and "outside directors" (within the meaning of section
162(m) of the Internal Revenue Code of 1986 (the "Code")) to the extent Rule
16b-3 and Code section 162(m), respectively, are applicable to Anteon and the
Plan. The Plan is not subject to the Employee Retirement Income Security Act of
1974, as amended or Section 401(a) of the Code.
The Plan became effective upon approval of the stockholders in January, 1997
and will remain in effect until January 30, 2007 unless sooner terminated by the
Board. On July 24, 1998, by resolution of the Board of Directors, and with the
written consent of the sole stockholder of Anteon, the Plan was amended to
increase the number of shares of common stock available for award under the Plan
from 250,000 shares to 325,000 shares and on July 23, 1999, by further
resolution of the Board of Directors, and with the consent of the stockholders
of Anteon, the Plan was amended to increase the number of shares of common stock
available for award under the Plan from 325,000 shares to 575,000 shares. The
Board of Directors may amend, alter, suspend, discontinue, or terminate the Plan
or any portion thereof at any time; provided that no such action may be taken
without stockholder approval if such approval is necessary to comply with
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any tax or regulatory requirement, or rule of any exchange or Nasdaq system on
which the shares of common stock of Anteon may then be listed or quoted,
including any stockholder approval required for continued compliance with Rule
16b-3 or to enable the Committee to grant incentive stock options pursuant to
the plan. The Committee is authorized to make minor or administrative
modifications to the plan including those dictated, authorized or made desirable
by requirements of applicable federal or state laws. The Committee may also
amend or modify any outstanding award to the extent that it would have had the
authority to make such award as so modified or amended. The Committee has full
power and authority to administer and interpret the plan and to adopt such
rules, regulations, agreements, guidelines and instruments for the
administration of the plan and for the conduct of its business as the Committee
deems necessary or advisable and to interpret same, all within the Committee's
sole and absolute discretion; provided that no such action which would impair
the rights of any participant or any holder or beneficiary of any award may be
taken without the consent of the affected participant, holder or beneficiary.
The plan authorizes the grant of awards to participants with respect to a
maximum of 325,000 shares of common stock. Any shares covered by awards which
are forfeited, expire or which are terminated or canceled for any reason (other
than as a result of the exercise or vesting of the award) will again be
available for grant under the plan. In addition, in the event of a
reclassification, recapitalization, stock split, stock dividend, combination of
shares or other similar event, the maximum number and kind of shares reserved
for issuance or with respect to which awards may be granted under the plan are
required to be adjusted to reflect such event, and the Committee is required to
make such adjustments as it deems appropriate and equitable in the number, kind
and price of shares covered by outstanding awards made under the plan, and in
any other matters which relate to awards and which are affected by the changes
in the common stock referred to above.
The Committee is authorized to make adjustments in the terms and conditions
of, and the criteria included in, awards in recognition of unusual or
nonrecurring events affecting Anteon, or the financial statements of Anteon or
any subsidiary, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the plan.
In the event of any proposed change in control (as defined in the Plan), the
Committee is required to take such action as it deems appropriate and equitable
to effectuate the purposes of the plan and to protect the grantees of the
awards, including, without limitation, the following: (i) acceleration or change
of the exercise dates of any award so that the unvested portion of any award
shall become fully vested and immediately exercisable; (ii) arrangements with
grantees for the payment of appropriate consideration to them for the
cancellation and surrender of any award, which shall not be less than
consideration paid for other common stock of Anteon which is acquired, sold,
transferred, or exchanged because of the proposed change in control; and (iii)
in any case where equity securities other than common stock of Anteon are
proposed to be delivered in exchange for or with respect to common stock of
Anteon, arrangements providing that any award shall become one or more awards
with respect to such other equity securities.
There is no restriction under the Federal securities laws on the resale of
any shares acquired pursuant to the Plan, except that (i) persons who at the
time of the resale are considered "affiliates" of Anteon (by reason of being in
a "control" relationship with Anteon) may resell such shares only pursuant to
Rule 144 under the Securities Act of 1933 or pursuant to a "reoffer prospectus"
which may hereinafter be filed by Anteon as part of a registration statement
relating to the plan and (ii) purchases and sales by corporate officers and
directors of any securities of Anteon are subject to section 16(b) of the
Securities Exchange Act of 1934 and the rules promulgated thereunder relating to
insider short-swing profits.
Anteon may require that a participant, as a condition to exercise of an
award, and as a condition to the delivery of any share certificate, provide to
Anteon, at the time of each such exercise and each such delivery, a written
representation (i) that the shares of common stock being acquired shall be
acquired by
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the participant solely for investment and will not be sold or transferred
without registration or the availability of an exemption from registration under
the Securities Act of 1933 and applicable state securities laws; and (ii) as to
the knowledge and experience in financial and business matters of the
participant and the participant's ability to bear the economic risk of such an
investment, in compliance with applicable law. Anteon may also require that the
participant obtain a "purchaser representative" as that term is defined under
applicable law. The stock certificates for any shares of common stock issued
pursuant to the plan are required to bear a legend restricting their
transferability unless such shares are registered or an exemption from
registration is available under the Securities Act of 1933 and applicable state
securities laws. Anteon may notify its transfer agent to stop any transfer of
shares of common stock not made in compliance with these restrictions. Common
stock may not be issued with respect to an award granted under the plan unless
the exercise of such award and the issuance and delivery of share certificates
for such common stock pursuant thereto comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, the Securities
Exchange Act of 1934, the rules and regulations promulgated thereunder and the
requirements of any national securities exchange or Nasdaq system on which the
common stock may then be listed or quoted, and such compliance to be subject to
the approval of counsel for Anteon to the extent such approval is sought by the
Committee.
Under the plan, the Committee may grant awards in the following forms:
non-qualified stock options, incentive stock options, stock appreciation rights
(including free standing, tandem and limited stock appreciation rights),
restricted stock or unrestricted stock awards, phantom stock, or any combination
of the foregoing. The Committee may grant awards alone, in addition to, in
tandem with, or in substitution for any other award. Awards may be granted for
no cash consideration or for such consideration as may be determined by the
Committee. Each award, and each right under any award, may be exercised during
the participant's lifetime only by the participant, unless otherwise determined
by the Committee or, if permissible under applicable law, by the participant's
guardian or legal representative; and may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a participant other
than by will or by the laws of descent and distribution provided that the
designation of a beneficiary will not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance for purposes of the plan.
STOCK OPTIONS
A stock option granted under the plan provides a participant the right to
purchase, within a specified period of time, a stated number of shares of common
stock at the price specified in the option. Non-qualified and incentive stock
options granted under the plan will be subject to such terms, including exercise
price and the conditions and timing of exercise, as may be determined by the
Committee.
On and after the date a participant terminates employment with Anteon or any
of its affiliates for any reason, Anteon shall have the right to purchase, and
the participant shall have the corresponding obligation to sell, upon delivery
of written notice to the participant by Anteon, any or all of the participant's
vested options and any or all shares then owned by the participant. The purchase
price of the shares shall be the fair market value of such shares as of the date
Anteon mails or otherwise delivers such written notice to the participant. The
purchase price of any vested option shall be the difference between the exercise
price per share and the fair market value of one share of common stock, measured
as of the date Anteon mails or otherwise delivers such written notice to the
participant, multiplied by the number of shares to which the option relates that
are being purchased. The Committee may in its sole and absolute discretion
deduct from the purchase price payable any and all amounts owed by the grantee
to Anteon at the time that payment of the purchase price is due the participant.
In the event of the participant's disability or death, the provisions of the
plan will apply to the participant's legal representative or guardian, executor,
personal representative, or to the person to whom the option and/or shares shall
have been transferred by will or the laws of descent and distribution, as though
such person is the participant.
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STOCK APPRECIATION RIGHTS
A stock appreciation right provides the participant the right to receive an
amount equal to the excess of the fair market value of a share of common stock
on the date of exercise of the stock appreciation right over the grant price
thereof. Stock appreciation rights granted under the plan will be subject to
such terms, including grant price and the conditions and limitations applicable
to the exercise thereof, as may be determined by the Committee. Stock
appreciation rights may be granted in tandem with another award, in addition to
another award, or freestanding and unrelated to another award. The Committee is
authorized under the plan to determine whether a stock appreciation right shall
be settled in cash, shares of common stock or a combination of cash and shares
of common stock.
STOCK AWARDS: RESTRICTED STOCK, UNRESTRICTED STOCK AND PHANTOM STOCK
Subject to the other applicable provisions of the plan, the Committee may at
any time and from time to time grant stock awards to eligible participants in
such amount and for such consideration, including no consideration or such
minimum consideration as may be required by law, as it determines. A stock award
may be denominated in shares of common stock or stock-equivalent units, and may
be paid in common stock, in cash, or in a combination of common stock and cash,
as determined in the sole and absolute discretion of the Committee from time to
time.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CAXTON-ISEMAN ARRANGEMENT
Anteon's management and an investor group organized by Caxton-Iseman
Capital, through Azimuth, acquired in April 1996 all of the outstanding capital
stock of our Predecessor Company, a wholly-owned subsidiary of Ogden Technology
Services Corporation and indirectly a wholly-owned subsidiary of Ogden
Corporation.
Azimuth obtained the funds required for the acquisition of our Predecessor
Company by issuing subordinated debt and common stock to Azimuth Technologies,
L.P. and to certain directors and executive officers of Anteon. The limited
partners of Azimuth LP include, among others, affiliates of Caxton-Iseman
Capital, Mr. Steven Lefkowitz, Mr. Robert Ferris and a number of business
associates of Caxton-Iseman Capital. The sole general partner of Azimuth LP is
Georgica (Azimuth Technologies), L.P., the sole general partner of which is a
corporation solely owned by Mr. Frederick Iseman. As a result, Mr. Frederick
Iseman controls Azimuth LP, Azimuth and Anteon.
Since April 1997, Anteon has been party to an arrangement (the
"Caxton-Iseman Capital Arrangement") with Caxton-Iseman Capital, an affiliate of
Anteon. The terms of the Caxton-Iseman Capital Arrangement are that
Caxton-Iseman Capital will monitor and assist the activities of Anteon in
accordance with, and subject to the investment objectives and guidelines
established by Anteon. Under the terms of the Caxton-Iseman Arrangement, Anteon
paid Caxton-Iseman Capital (1) a $500,000 annual fee, payable annually
commencing January 1, 1998, and terminating upon the successful completion of
the acquisition, (2) a fee, paid upon the successful completion of the
acquisition, of $1.15 million and (3) an annual fee, paid upon the successful
completion of the acquisition, equal to 3% of the EBITDA of Anteon. The fees
under clauses (1) and (3) were pro-rated for partial years. Anteon expensed and
paid $400,000 under this arrangement during 1998.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of June 30, 1999, the number of shares of
common stock beneficially owned by each of the 5% stockholders of Anteon, each
of its directors, the Named Executive Officers and all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF COMMON TOTAL SHARES OF
STOCK OF ANTEON COMMON STOCK
BENEFICIALLY OWNED(A) OF ANTEON
--------------------------- ---------------
<S> <C> <C>
Azimuth Technologies, Inc. (b)....................................... 3,551,972 99.8%
Frederick J. Iseman (b).............................................. 3,551,972 99.8
Gilbert F. Decker (c)................................................ 2,000 *
Dr. Paul Kaminski (c)................................................ 2,000 *
Joseph M. Kampf (d).................................................. 11,615 *
Carlton B. Crenshaw (e).............................................. 5,607 *
Seymour L. Moskowitz (f)............................................. 17,623 *
All Directors and Executive Officers as a Group(g)................... 99.8
</TABLE>
- ------------------------
* Denotes beneficial ownership of less than 1%.
(a) Determined in accordance with Rule 13d-3 under the Exchange Act.
(b) By virtue of Mr. Frederick Iseman's indirect control of Azimuth through
Azimuth LP, the limited partners of which include affiliates of
Caxton-Iseman Capital, Mr. Steven Lefkowitz and Mr. Robert Ferris. Mr.
Frederick Iseman has sole voting and dispositive power over 3,551,972 shares
of Anteon common stock and may be deemed to be the beneficial owner thereof.
Mr. Frederick Iseman's address is c/o Caxton-Iseman Capital, Inc., 667
Madison Avenue, New York, New York 10021.
(c) Includes 2,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of April 13, 1999. Does not include 4,000 shares
of common stock issuable pursuant to stock options that are not exercisable
within 60 days of such date.
(d) Includes 11,615 shares of common stock issuable pursuant to stock options
exercisable within 60 days of April 13, 1999. Does not include 17,425 shares
of common stock issuable pursuant to stock options that are not exercisable
within 60 days of such date.
(e) Includes 5,607 shares of common stock issuable pursuant to stock options
exercisable within 60 days of April 13, 1999. Does not include 8,412 shares
of common stock issuable pursuant to stock options that are not exercisable
within 60 days of such date.
(f) Includes 17,623 shares of common stock issuable pursuant to stock options
exercisable within 60 days of April 13, 1999. Does not include 26,438 shares
of common stock issuable pursuant to stock options that are not exercisable
within 60 days of such date.
(g) Includes 40,645 shares of common stock issuable pursuant to stock options
exercisable within 60 days of April 13, 1999. Does not include 87,075 shares
of common stock issuable pursuant to stock options that are not exercisable
within 60 days of such date.
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DESCRIPTION OF OTHER MATERIAL AGREEMENTS
OGDEN NOTE
The consideration paid by Azimuth when it acquired our predecessor company
included a note of Azimuth in favor of Ogden Technology Services Corporation
("Ogden"), the parent company of Ogden Professional Services Corporation, in the
principal amount of $8.5 million, of which $3.65 million is outstanding. The
Ogden note is an adjustable, nonnegotiable, subordinated 9% promissory note due
April 22, 2004. Ogden has the right, so long as (1) no defaults under a senior
credit agreement have occurred and (2) Ogden, at its sole cost and expense, has
delivered a written report of an independent third-party appraiser that Azimuth
will be solvent (after giving effect to the guarantee described in this
sentence), to cause Azimuth to execute and deliver to Ogden a guarantee of the
Ogden note; provided that the terms and conditions of such guarantee must be
satisfactory to the senior debt holders in all respects. Such guarantee must be
subject to a subordination agreement acceptable to the senior debt holders, and
must be secured by a subordinated second lien on the collateral under the senior
credit agreement on terms acceptable to the senior debt holders.
Interest on the Ogden note is due and payable quarterly in arrears. Azimuth
may at any time prepay principal or interest, in whole or in part, without
premium or penalty. Azimuth must prepay in full upon a sale, merger or public
offering of the capital stock of Anteon. The Ogden note is wholly subordinate
and junior in right of payment to Anteon's borrowings under the new credit
facility and any amendments, refinancings or replacements thereof.
EXISTING INTEREST RATE SWAP AGREEMENTS
We have entered into interest rate swap agreements to reduce the impact of
changes in interest rates under our new credit agreement. At June 30, 1999, we
had outstanding interest rate swap agreements with commercial banks having a
total notional principal amount of $35 million. The interest rate swap
agreements mature as of December 31, 2002, December 31, 2003, and September 25,
2003, respectively. The differential to be paid or received is accrued as
interest rates change and is recognized over the life of the agreements. We
expect to repay all our obligations under these interest rate swap agreements
and terminate them at the same time as the existing credit agreement.
VECTOR DATA CONTINGENT PAYMENTS
On August 29, 1997, Anteon acquired all of the outstanding stock of Vector
Data, as well as Vector Data's 80% interest in Vector Data Systems (UK) Limited.
The consideration to the former stockholders of Vector Data included up to $6
million in cash to be paid by Anteon contingent upon Vector Data meeting certain
revenue and gross profit thresholds for fiscal years 1998 and 1999. Vector Data
did not meet the revenue and gross profit thresholds for fiscal year 1998, and,
accordingly, a maximum of $3 million only can now potentially become payable.
TECHMATICS DEFERRED AND CONTINGENT PAYMENTS
On May 29, 1998, Anteon acquired all of the outstanding stock of Techmatics.
Additional consideration of between $3.75 million and $6.25 million may become
due to be paid by Anteon contingent upon Techmatics meeting certain operating
profit thresholds for its fiscal year ending June 30, 1999, to be calculated by
September 30, 1999. However, if Anteon chooses to modify Techmatics' financial
reporting to a calendar year basis, such calculation must be made by April 1,
2000, but interest at a rate of 6% per year will accrue beginning September 30,
1999 and will increase to a rate of 7.5% per year beginning April 1, 2000 on any
amount of contingent consideration subsequently determined to have been earned.
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TECHMATICS NOTES
On May 29, 1998, as part of Anteon's acquisition of Techmatics, Anteon
issued subordinated promissory notes due May 31, 2000 in favor of each of the
then existing stockholders and option holders of Techmatics, in the aggregate
principal amount of $10 million. Under the terms of the Techmatics notes,
one-tenth of the aggregate principal amount, $1 million, was paid as of May 31,
1999, and the remaining nine-tenths of the aggregate principal amount, $9
million, together with interest accruing from May 31, 1999 on four-ninths of the
principal amount then outstanding, $4 million, at a rate of 6% per annum, is due
and payable on May 31, 2000. All overdue amounts of principal will bear interest
at a rate of 7.5% per annum. Anteon is entitled to prepay the Techmatics notes,
in whole or in part, without penalty or premium.
The Techmatics notes are wholly subordinate and junior in right of payment
to Anteon's borrowings under the new credit facility and any amendments,
refinancings or replacements thereof, and to the Ogden note.
Anteon will be in default under any particular Techmatics note upon the
occurrence of any of the following events of default: (1) Anteon fails to make
any payment of principal or interest under such Techmatics note when due; (2)
Anteon defaults under its new credit agreement or any amendments, refinancings
or replacements thereof, or under the Ogden note; (3) (a) a consolidation,
merger or similar reorganization in which Anteon's stockholders before the
reorganization own less than 50% of the voting power of the surviving entity
after the reorganization, or (b) any transaction or series of transactions in
which more than 50% of Anteon's voting power is transferred except any public
offering of Anteon's common stock; (4) a sale, lease, transfer or other
disposition in a transaction or series of transactions of all or substantially
all of the assets of Anteon; or (5) Anteon is involved in proceedings relating
to bankruptcy, insolvency, reorganization or relief of debts.
NEW CREDIT FACILITY
Simultaneous with the completion of the acquisition, Anteon entered into a
new credit facility under a new credit agreement among Anteon, as borrower,
CSFB, as administrative agent and lead arranger, Mellon, as co-arranger,
collateral agent and syndication agent, Deutsche Bank, as documentation agent,
and a syndicate of financial institutions, including CSFB, Deutsche Bank and
Mellon. Pursuant to the terms of the new credit agreement, the lenders, subject
to certain conditions, provide a credit facility of up to $180.0 million to
Anteon consisting of: (1) a $120.0 million six-year senior secured revolving
credit facility with a $10.0 million letter of credit sublimit and (2) a $60.0
million six-year senior secured term loan facility. The Techmatics notes are
also wholly subordinate and junior in right of payment to any refinancings or
replacements of our existing credit facility, including our new credit facility
and the Ogden note. The aggregate amount available for borrowing under the
revolving credit facility is determined based on a portion of eligible accounts
receivable. At June 30, 1999 Anteon had up to $66.4 million of borrowing
availability under the revolving credit facility, subject to Anteon's borrowing
base and ratio of net debt to EBITDA (as defined in the new credit facility), of
which $13.0 million had been drawn. See "Use of Proceeds" included elsewhere in
this prospectus.
SECURITY AND GUARANTEES
All existing and future domestic subsidiaries of Anteon unconditionally
guarantee the repayment of the new credit facility. The new credit facility is
secured by substantially all of the tangible and intangible assets of Anteon and
the credit agreement guarantors. All of the capital stock of Anteon and
substantially all of the capital stock of Anteon's subsidiaries, including A&T,
is pledged as part of the security for the new credit facility.
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MATURITY AND AMORTIZATION
Loans made under the term loan facility will mature on the sixth anniversary
of June 23, 1999, and up to $45 million of the aggregate principal amount under
the new credit facility will amortize ratably on a quarterly basis commencing 24
months after June 23, 1999, with up to $15 million due at final maturity. Loans
made under the revolving credit facility will mature on the sixth anniversary of
June 23, 1999.
INTEREST
Borrowings under the new credit facility bear interest at a floating rate
based upon, at the option of Anteon, LIBOR or the base rate, in each case plus a
margin determined based upon Anteon's ratio of net debt to EBITDA (as defined in
the new credit facility). Anteon has also agreed to pay administration fees,
commitment fees and certain expenses and to provide certain indemnities, all of
which Anteon believes are customary for financings of this type.
PREPAYMENTS
Anteon is required to prepay, subject to exceptions set forth in the new
credit agreement, borrowings under the term loan facility with (i) 75% of excess
cash flow, (ii) 100% of net cash proceeds of non-ordinary course asset sales or
other dispositions of property by Anteon and its subsidiaries, (iii) 100% of net
cash proceeds of issuances of debt obligations of Anteon and its subsidiaries
and (iv) 50% of net cash proceeds of public issuances of equity securities of
Anteon.
COVENANTS
The new credit agreement contains affirmative and negative covenants
customary for such financings. The new credit agreement also contains financial
covenants customary for such financings, including, but not limited to: maximum
ratio of net debt to EBITDA; maximum ratio of senior debt to EBITDA (as defined
in the new credit facility); limitation on capital expenditures; and minimum
EBITDA.
EVENTS OF DEFAULT
The new credit agreement contains events of default customary for such
financings, including, but not limited to: nonpayment of principal, interest,
fees or other amounts when due; violation of covenants; failure of any
representation or warranty to be true in all material respects when made or
deemed made; cross default and cross acceleration; change in control; bankruptcy
events; material judgments; ERISA; and actual or Anteon-asserted invalidity of
the guarantees or security documents. Such events of default allow for certain
grace periods.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We are offering to exchange our exchange notes for a like aggregate
principal amount at maturity of our initial notes.
The exchange notes that we propose to issue in this exchange offer will be
substantially identical to our initial notes except that, unlike our initial
notes, the exchange notes will have no transfer restrictions or registration
rights. You should read the description of the exchange notes in the section in
this prospectus entitled "Description of the Notes."
We reserve the right in our sole discretion to purchase or make offers for
any initial notes that remain outstanding following the expiration or
termination of this exchange offer and, to the extent permitted by applicable
law, to purchase initial notes in the open market or privately negotiated
transactions, one or more additional tender or exchange offers or otherwise. The
terms and prices of these purchases or offers could differ significantly from
the terms of this exchange offer. In addition, nothing in this exchange offer
will prevent us from exercising our right to discharge our obligations on the
initial notes by depositing certain securities with the trustee and otherwise.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
This exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless we extend it in our reasonable discretion. The expiration date of
this exchange offer will be at least 20 business days after the commencement of
the exchange offer in accordance with Rule 14e-1(a) under the Securities
Exchange Act of 1934.
We expressly reserve the right to delay acceptance of any initial notes,
extend or terminate this exchange offer and not accept any initial notes that we
have not previously accepted if any of the conditions described below under
"--Conditions to the Exchange Offer" have not been satisfied or waived by us. We
will notify the exchange agent of any extension by oral notice promptly
confirmed in writing or by written notice. We will also notify the holders of
the initial notes by mailing an announcement or by a press release or other
public announcement communicated before 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date unless
applicable laws require us to do otherwise.
We also expressly reserve the right to amend the terms of this exchange
offer in any manner. If we make any material change, we will promptly disclose
this change in a manner reasonably calculated to inform the holders of our
initial notes of the change including providing public announcement or giving
oral or written notice to these holders. A material change in the terms of this
exchange offer could include a change in the timing of the exchange offer, a
change in the exchange agent and other similar changes in the terms of this
exchange offer. If we make any material change to this exchange offer, we will
disclose this change by means of a post-effective amendment to the registration
statement which includes this prospectus and will distribute an amended or
supplemented prospectus to each registered holder of initial notes. In addition,
we will extend this exchange offer for an additional five to ten business days
as required by the Exchange Act, depending on the significance of the amendment,
if the exchange offer would otherwise expire during that period. We will
promptly notify the exchange agent by oral notice, promptly confirmed in
writing, or written notice of any delay in acceptance, extension, termination or
amendment of this exchange offer.
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PROCEDURES FOR TENDERING INITIAL NOTES
PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL
To tender your initial notes in this exchange offer, you must use one of the
six alternative procedures described below:
(1) REGULAR DELIVERY PROCEDURE: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal guaranteed if required by the letter
of transmittal. Mail or otherwise deliver the letter of transmittal or the
facsimile together with the certificates representing the initial notes
being tendered and any other required documents to the exchange agent on or
before 5:00 p.m., New York City time, on the expiration date.
(2) BOOK-ENTRY DELIVERY PROCEDURE: Send a timely confirmation of a
book-entry transfer of your initial notes, if this procedure is available,
into the exchange agent's account at The Depository Trust Company in
accordance with the procedures for book-entry transfer described under
"--Book-Entry Delivery Procedure" below, on or before 5:00 p.m., New York
City time, on the expiration date.
(3) GUARANTEED DELIVERY PROCEDURE: If time will not permit you to
complete your tender by using the procedures described in (1) or (2) above
before the expiration date, comply with the guaranteed delivery procedures
described under "--Guaranteed Delivery Procedure" below.
The method of delivery of the initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ASSURE TIMELY DELIVERY. You should not send any letters of transmittal or
initial notes to us. You must deliver all documents to the exchange agent at its
address provided below. You may also request your broker, dealer, commercial
bank, trust company or nominee to tender your initial notes on your behalf.
Only a holder of initial notes may tender initial notes in this exchange
offer. A holder is any person in whose name initial notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder.
If you are the beneficial owner of initial notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your notes, you must contact that registered holder promptly
and instruct that registered holder to tender your notes on your behalf. If you
wish to tender your initial notes on your own behalf, you must, before
completing and executing the letter of transmittal and delivering your initial
notes, either make appropriate arrangements to register the ownership of these
notes in your name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by:
(1) a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
(2) a commercial bank or trust company having an office or correspondent
in the United States, or
(3) an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Exchange Act,
UNLESS the initial notes are tendered:
(1) by a registered holder or by a participant in The Depository Trust
Company whose name appears on a security position listing as the owner, who
has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the letter of transmittal and only if the
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exchange notes are being issued directly to this registered holder or
deposited into this participant's account at The Depository Trust Company,
or
(2) for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an eligible guarantor institution within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934.
If the letter of transmittal or any bond powers are signed by:
(1) The recordholder(s) of the initial notes tendered: the signature
must correspond with the name(s) written on the face of the initial notes
without alteration, enlargement or any change whatsoever.
(2) A participant in The Depository Trust Company: the signature must
correspond with the name as it appears on the security position listing as
the holder of the initial notes.
(3) A person other than the registered holder of any initial notes:
these initial notes must be endorsed or accompanied by bond powers and a
proxy that authorize this person to tender the initial notes on behalf of
the registered holder, in satisfactory form to us as determined in our sole
discretion, in each case, as the name of the registered holder or holders
appears on the initial notes.
(4) Trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity: these persons should so indicate when signing. Unless waived by
us, evidence satisfactory to us of their authority to so act must also be
submitted with the letter of transmittal.
BOOK-ENTRY DELIVERY PROCEDURE
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry deliveries of initial notes by causing The
Depository Trust Company to transfer these initial notes into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures for transfer. To effectively tender notes
through The Depository Trust Company, the financial institution that is a
participant in The Depository Trust Company will electronically transmit its
acceptance through the Automatic Tender Offer Program. The Depository Trust
Company will then edit and verify the acceptance and send an agent's message to
the exchange agent for its acceptance. An agent's message is a message
transmitted by The Depository Trust Company to the exchange agent stating that
The Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the notes that this
participation has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce this agreement against this participant.
The exchange agent will make a request to establish an account for the initial
notes at The Depository Trust Company for purposes of the exchange offer within
two business days after the date of this prospectus.
A delivery of initial notes through a book-entry transfer into the exchange
agent's account at The Depository Trust Company will only be effective if an
agent's message or the letter of transmittal or a facsimile of the letter of
transmittal with any required signature guarantees and any other required
documents is transmitted to and received by the exchange agent at the address
indicated below under "--Exchange Agent" on or before the expiration date unless
the guaranteed delivery procedures described below are complied with. DELIVERY
OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
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GUARANTEED DELIVERY PROCEDURE
If you are a registered holder of initial notes and desire to tender your
notes, and (1) these notes are not immediately available, (2) time will not
permit your notes or other required documents to reach the exchange agent before
the expiration date or (3) the procedures for book-entry transfer cannot be
completed on a timely basis and an agent's message delivered, you may still
tender in this exchange offer if:
(1) you tender through a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States, or an eligible guarantor institution within the meaning of
Rule 17Ad-15 under the Exchange Act,
(2) on or before the expiration date, the exchange agent receives a
properly completed and duly executed letter of transmittal or facsimile of
the letter of transmittal, and a notice of guaranteed delivery,
substantially in the form provided by us, with your name and address as
holder of the initial notes and the amount of notes tendered, stating that
the tender is being made by that letter and notice and guaranteeing that
within five business days after the expiration date the certificates for all
the initial notes tendered, in proper form for transfer, or a book-entry
confirmation with an agent's message, as the case may be, and any other
documents required by the letter of transmittal will be deposited by the
eligible institution with the exchange agent, and
(3) the certificates for all your tendered initial notes in proper form
for transfer or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the exchange
agent within five business days after the expiration date.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Your tender of initial notes will constitute an agreement between you and us
governed by the terms and conditions provided in this prospectus and in the
related letter of transmittal.
We will be deemed to have received your tender as of the date when your duly
signed letter of transmittal accompanied by your initial notes tendered, or a
timely confirmation of a book-entry transfer of these notes into the exchange
agent's account at The Depository Trust Company with an agent's message, or a
notice of guaranteed delivery from an eligible institution is received by the
exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by us in our
sole discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our opinion
or our counsel's opinion, be unlawful. We also reserve the absolute right to
waive any conditions of this exchange offer or irregularities or defects in
tender as to particular notes. Our interpretation of the terms and conditions of
this exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of initial notes must be cured within
such time as we shall determine. We, the exchange agent or any other person will
be under no duty to give notification of defects or irregularities with respect
to tenders of initial notes. We and the exchange agent or any other person will
incur no liability for any failure to give notification of these defects or
irregularities. Tenders of initial notes will not be deemed to have been made
until such irregularities have been cured or waived. The exchange agent will
return without cost to their holders any initial notes that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all initial notes properly tendered and will
issue the exchange notes promptly thereafter. Please refer to the section of
this prospectus entitled "--Conditions to the Exchange Offer" below. For
purposes of this
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exchange offer, initial notes will be deemed to have been accepted as validly
tendered for exchange when, as and if we give oral or written notice of
acceptance to the exchange agent.
We will issue the exchange notes in exchange for the initial notes tendered
pursuant to a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at The Depository Trust Company with an
agent's message, in each case, in form satisfactory to us and the exchange
agent.
If any tendered initial notes are not accepted for any reason provided by
the terms and conditions of this exchange offer or if initial notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged initial notes will be returned without expense
to the tendering holder, or, in the case of initial notes tendered by book-entry
transfer procedures described above, will be credited to an account maintained
with the book-entry transfer facility, as promptly as practicable after
withdrawal, rejection of tender or the expiration or termination of the exchange
offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the notes tendered. This
proxy will be considered coupled with an interest in the tendered notes. This
appointment will be effective only when, and to the extent that we accept your
notes in this exchange offer. All prior proxies on these notes will then be
revoked and you will not be entitled to give any subsequent proxy. Any proxy
that you may give subsequently will not be deemed effective. Our designees will
be empowered to exercise all voting and other rights of the holders as they may
deem proper at any meeting of note holders or otherwise. The initial notes will
be validly tendered only if we are able to exercise full voting rights on the
notes, including voting at any meeting of the note holders, and full rights to
consent to any action taken by the note holders.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders of
initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"--Exchange Agent" and before acceptance of your tendered notes for exchange by
us.
Any notice of withdrawal must:
(1) specify the name of the person having tendered the initial notes to
be withdrawn,
(2) identify the notes to be withdrawn, including, if applicable, the
registration number or numbers and total principal amount of these notes,
(3) be signed by the person having tendered the initial notes to be
withdrawn in the same manner as the original signature on the letter of
transmittal by which these notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer sufficient
to permit the trustee for the initial notes to register the transfer of
these notes into the name of the person having made the original tender and
withdrawing the tender,
(4) specify the name in which any of these initial notes are to be
registered, if this name is different from that of the person having
tendered the initial notes to be withdrawn, and
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(5) if applicable because the initial notes have been tendered though
the book-entry procedure, specify the name and number of the participant's
account at The Depository Trust Company to be credited, if different than
that of the person having tendered the initial notes to be withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of all notices of withdrawal and our determination
will be final and binding on all parties. Initial notes that are withdrawn will
be deemed not to have been validly tendered for exchange in this exchange offer.
The exchange agent will return without cost to their holders all initial
notes that have been tendered for exchange and are not exchanged for any reason,
as promptly as practicable after withdrawal, rejection of tender or expiration
or termination of this exchange offer.
You may retender properly withdrawn initial notes in this exchange offer by
following one of the procedures described under "--Procedures for Tendering
Initial Notes" above at any time on or before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We will complete this exchange offer only if:
(1) there is no action or proceeding instituted or threatened in any
court or before any governmental agency or body that in our judgment would
reasonably be expected to prohibit, prevent or otherwise impair our ability
to proceed with this exchange offer,
(2) there is no change in the laws and regulations which, in our
judgment, would reasonably be expected to impair our ability to proceed with
this exchange offer,
(3) there is no change in the current interpretation of the staff of the
Commission which permits resales of the exchange notes,
(4) there is no stop order issued by the Commission or any state
securities authority suspending the effectiveness of the registration
statement which includes this prospectus or the qualification of the
indenture for our exchange notes under the Trust Indenture Act of 1939 and
there are no proceedings initiated or, to our knowledge, threatened for that
purpose, and
(5) we obtain all governmental approvals that we deem in our sole
discretion necessary to complete this exchange offer.
These conditions are for our sole benefit. We may assert any one of these
conditions regardless of the circumstances giving rise to it and may also waive
any one of them, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that it has not been satisfied, subject
to applicable law. We will not be deemed to have waived our rights to assert or
waive these conditions if we fail at any time to exercise any of them. Each of
these rights will be deemed an ongoing right which we may assert at any time and
from time to time.
If we determine that we may terminate this exchange offer because any of
these conditions is not satisfied, we may:
(1) refuse to accept and return to their holders any initial notes that
have been tendered,
(2) extend the exchange offer and retain all notes tendered before the
expiration date, subject to the rights of the holders of these notes to
withdraw their tenders, or
(3) waive any condition that has not been satisfied and accept all
properly tendered notes that have not been withdrawn or otherwise amend the
terms of this exchange offer in any respect as provided under the section in
this prospectus entitled "--Expiration Date; Extensions; Amendments;
Termination."
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ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value as the initial
notes as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize the costs of the exchange offer and the unamortized expenses
related to the issuance of the exchange notes over the term of the exchange
notes.
EXCHANGE AGENT
We have appointed IBJ Whitehall Bank & Trust Company as exchange agent for
this exchange offer. You should direct all questions and requests for assistance
on the procedures for tendering and all requests for additional copies of this
prospectus or the letter of transmittal to the exchange agent as follows:
By mail:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
By hand/overnight delivery:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Facsimile Transmission: (212) 858-2103
Confirm by Telephone: (212) 858-2611
Attention: Ms. Patricia Gallagher
FEES AND EXPENSES
We will bear the expenses of soliciting tenders in this exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of this exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with this
exchange offer.
We will pay all transfer taxes, if any, applicable to the exchange of
initial notes in accordance with this exchange offer. However, tendering holders
will pay the amount of any transfer taxes, whether imposed on the registered
holder or any other persons, if:
(1) certificates representing exchange notes or initial notes for
principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be registered or issued in the name of, any person other than
the registered holder of the notes tendered,
(2) tendered initial notes are registered in the name of any person
other than the person signing the letter of transmittal, or
(3) a transfer tax is payable for any reason other than the exchange of
the initial notes in this exchange offer.
If you do not submit satisfactory evidence of the payment of any of these
taxes or of any exemption from this payment with the letter of transmittal, we
will bill you directly the amount of these transfer taxes.
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YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes in accordance with this exchange offer, or if you do not properly
tender your initial notes in this exchange offer, you will not be able to
resell, offer to resell or otherwise transfer the initial notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act. In addition, you
will not necessarily be able to obligate us to register the initial notes under
the Securities Act.
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DESCRIPTION OF THE NOTES
Anteon Corporation issued the notes under an indenture dated as of May 11,
1999 between itself and IBJ Whitehall Bank & Trust Company, as trustee (the
"Trustee"), a copy of which is filed as an exhibit to the registration statement
relating to this exchange offer. The terms of the notes include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.
Some terms used in this description are defined under the subheading
"--Certain Definitions". In this description, the word "Company" refers only to
Anteon Corporation and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the indenture. We urge you to read the indenture because it, not this
description, defines your rights as holders of these notes. You may request
copies of the these agreements at our address set forth under the heading "Where
You Can Find More Information".
BRIEF DESCRIPTION OF THE NOTES
These notes:
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- are subject to registration with the SEC pursuant to the Registration
Rights Agreement.
PRINCIPAL, MATURITY AND INTEREST
The Company issued the notes initially in the principal amount of $100
million. The Company will issue the notes in denominations of $1,000 and any
integral multiple of $1,000. The notes mature on May 15, 2009. Subject to our
compliance with the covenant described under the subheading "--Certain
Covenants--Limitation on Indebtedness", we are permitted to issue more notes
under the indenture in an unlimited principal amount. Any such additional notes
that are actually issued will be treated as issued and outstanding notes for all
purposes of the indenture and this "Description of the Notes" unless the context
indicates otherwise.
Interest on these notes will accrue at the rate of 12% per annum and will be
payable semiannually in arrears on May 15 and November 15, commencing on
November 15, 1999. We will make each interest payment to the holders of record
of these notes on the immediately preceding May 1 and November 1. We will pay
interest on overdue principal at 1% per annum in excess of the above rate and
will pay interest on overdue installments of interest at such higher rate to the
extent lawful.
Interest on these notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the notes at
our option prior to May 15, 2004.
On and after May 15, 2004, we will be entitled at our option to redeem all
or a portion of these notes upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed in percentages of principal amount on the
redemption date), plus accrued interest to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest
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payment date), if redeemed during the 12-month period commencing on May 15 of
the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2004............................................................................. 106.00%
2005............................................................................. 104.00
2006............................................................................. 102.00
2007 and thereafter.............................................................. 100.00
</TABLE>
In addition, before May 15, 2002, we may at our option on one or more
occasions redeem notes (which includes additional notes, if any) in an aggregate
principal amount not to exceed 25% of the aggregate principal amount of the
notes (which includes additional notes, if any) originally issued at a
redemption price (expressed as a percentage of principal amount of 112%, plus
accrued and unpaid interest to the redemption date, with the net cash proceeds
from one or more Public Equity Offerings following which there is a Public
Market (PROVIDED that, if the Public Equity Offering is an offering by Parent, a
portion of the Net Cash Proceeds thereof equal to the amount required to redeem
any such notes is contributed to the equity capital of the Company); PROVIDED
that
(1) at least 75% of such aggregate principal amount of notes (which includes
additional notes, if any) remains outstanding immediately after the
occurrence of each such redemption (other than notes held, directly or
indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 60 days after the date of the related
Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the notes at any time, the Trustee will
select notes on a PRO RATA basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. We will issue a new note in principal amount equal to the
unredeemed portion of the original note in the name of the holder thereof upon
cancelation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
Subject to the terms described above, we are not required to make any
mandatory redemption or sinking fund payments with respect to the notes.
However, under certain circumstances, we may be required to offer to purchase
the notes as described under the captions "--Change of Control" and "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock". We may at any
time and from time to time purchase notes in the open market or otherwise.
SUBSIDIARY GUARANTIES
The Subsidiary Guarantors will jointly and severally guarantee, on a senior
subordinated basis, our obligations under these notes. The obligations of each
Subsidiary Guarantor under its Subsidiary Guaranty will be limited as necessary
to prevent that Subsidiary Guaranty from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Subordination".
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Each Subsidiary Guarantor that makes a payment under its Subsidiary Guaranty
will be entitled to a contribution from each other Subsidiary Guarantor in an
amount equal to such other Subsidiary Guarantor's PRO RATA portion of such
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of such payment determined in accordance with GAAP.
If a Subsidiary Guaranty were rendered voidable, it could be subordinated by
a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guaranty could be reduced to zero. See "Risk Factors--Subordination".
The Subsidiary Guaranty of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition (including by way of consolidation or
merger) of a Subsidiary Guarantor;
(2) upon the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor; or
(3) the designation of such Subsidiary Guarantor as an Unrestricted
Subsidiary pursuant to the terms of the indenture;
in the case of (1) and (2) above, other than to the Company or an Affiliate of
the Company and as permitted by the indenture.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium, if any, and interest on the notes
and the payment of any Subsidiary Guaranty will be subordinate in right of
payment to the prior payment in full in cash of all Senior Indebtedness of the
Company or the relevant Subsidiary Guarantor, as the case may be, including the
obligations of the Company and such Subsidiary Guarantor under the Credit
Agreement.
As of December 31, 1998, after giving pro forma effect to the Transactions:
(1) the Company's Senior Indebtedness would have been approximately $78.9
million, all of which was secured indebtedness; and
(2) the Senior Indebtedness of the Subsidiary Guarantors would have been
approximately $78.9 million. Substantially all of the pro forma Senior
Indebtedness of the Subsidiary Guarantors comprises their respective
guaranties of Senior Indebtedness of the Company under the Credit
Agreement.
Although the indenture contains limitations on the amount of additional
Indebtedness that the Company and the Subsidiary Guarantors may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitation on Indebtedness".
LIABILITIES OF SUBSIDIARIES VERSUS NOTES
A substantial portion of our operations are conducted through our
subsidiaries. Some of our subsidiaries are not guaranteeing the notes. Claims of
creditors of such non-guarantor subsidiaries, including trade creditors holding
indebtedness or guarantees issued by such non-guarantor subsidiaries, and claims
of preferred stockholders of such non-guarantor subsidiaries generally will have
priority with respect to the assets and earnings of such non-guarantor
subsidiaries over the claims of our creditors, including holders of the notes,
even if such claims do not constitute Senior Indebtedness. Accordingly, the
notes and each Subsidiary Guaranty will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders, if any, of such
non-guarantor subsidiaries.
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At March 31, 1999, after giving pro forma effect to the Transactions, the
total liabilities of our subsidiaries (other than the Subsidiary Guarantors)
would have been approximately $0.9 million, including trade payables. Although
the indenture limits the incurrence of Indebtedness and preferred stock of
certain of our subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities or obligations
that are not considered Indebtedness under the indenture. See "--Certain
Covenants-- Limitation on Indebtedness".
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the indenture. The notes and each
Subsidiary Guaranty will in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively.
We have agreed in the indenture that we will not Incur, directly or
indirectly, any indebtedness that is contractually subordinate or junior in
right of payment to our senior Indebtedness, unless such indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
senior Subordinated Indebtedness. The indenture does not treat unsecured
Indebtedness as subordinated or junior to Secured Indebtedness merely because it
is unsecured.
PAYMENT OF NOTES
We are not permitted to pay principal of, premium, if any, or interest on
the notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not repurchase, redeem or otherwise retire any
notes (collectively, "pay the notes") if:
(1) any Designated Senior Indebtedness is not paid when due; or
(2) any other default on designated Senior Indebtedness occurs and the
maturity of such designated Senior Indebtedness is accelerated in
accordance with its terms;
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full in cash. Regardless of the foregoing, we are permitted to pay the
notes if we and the Trustee receive written notice approving such payment from
the Representative of any Designated Senior Indebtedness with respect to which
either of the events set forth in clause (1) or (2) above has occurred and is
continuing.
During the continuance of any default (other than a default described in
clause (1) or (2) above) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, we are not permitted to pay the
notes for a period (a "Payment Blockage Period") commencing upon the receipt by
the Trustee (with a copy to us) of written notice (a "Blockage Notice") of such
default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter. The Payment Blockage Period will end earlier if such
Payment Blockage Period is terminated:
(1) by written notice to the Trustee and us from the Person or Persons who
gave such Blockage Notice;
(2) because no defaults continue in existence which would permit the
acceleration of the maturity of any designated Senior Indebtedness at
such time; or
(3) because such Designated Senior Indebtedness has been discharged or
repaid in full in cash.
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Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, or any payment
default described in clause (1) or (2) of the second preceding paragraph exists,
we are permitted to resume paying the notes after the end of such Payment
Blockage Period. The notes shall not be subject to more than one Payment
Blockage Period in any consecutive 360-day period, irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period,
except that if any Blockage Notice is delivered to the Trustee by or on behalf
of holders of Designated Senior Indebtedness (other than holders of the Bank
Indebtedness), a Representative of holders of Bank Indebtedness may give another
Blockage Notice within such period. However, in no event may the total number of
days during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any 360 consecutive day period, and there must be
181 days during any 360-day consecutive period during which no Payment Blockage
Period is in effect.
Upon any payment or distribution of the assets of the Company upon any
liquidation or dissolution or reorganization of or similar proceeding relating
to the Company or its property:
(1) the holders of Senior Indebtedness will be entitled to receive payment
in full in cash of all Obligations with respect to such Senior
Indebtedness before the holders of the notes are entitled to receive any
payment;
(2) until all Obligations with respect to Senior Indebtedness are paid in
full in cash, any payment or distribution to which holders of the notes
would be entitled but for the subordination provisions of the indenture
will be made to holders of such Senior Indebtedness as their interests
may appear, except that holders of notes may receive certain Capital
Stock and subordinated debt obligations; and
(3) if a distribution is made to holders of the notes that, due to the
subordination provisions, should not have been made to them, such holders
of the notes are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the notes is accelerated because of an Event of Default, the
Company or the Trustee must promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration. If any
Designated Senior Indebtedness is outstanding, neither the Company nor any
Subsidiary Guarantor may pay the notes until five Business Days after the
Representatives of all the issues of Designated Senior Indebtedness receive
notice of such acceleration and, thereafter, may pay the notes only if the
indenture otherwise permits payment at that time.
A Subsidiary Guarantor's obligations under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to the Company's obligations under the notes apply
equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the indenture, in the
event of a liquidation or insolvency proceeding, creditors of the Company or a
Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or a
Subsidiary Guarantor, as the case may be, may recover more, ratably, than the
holders of the notes, and creditors of ours who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the holders of the notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance", if the foregoing
subordination provisions were not violated at the time the respective amounts
were deposited pursuant to such defeasance provisions.
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(1) prior to the earlier to occur of (A) the first public offering of common
stock of Parent or (B) the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of
the Voting Stock of the Company, whether as a result of issuance of
securities of the Parent or the Company, any merger, consolidation,
liquidation or dissolution of the Parent or the Company, any direct or
indirect transfer of securities by Parent or otherwise (for purposes of
this clause (1) and clause (2) below, the Permitted Holders shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent corporation);
(2) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (1) above, except that for
purposes of this clause (2) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER,
that the Permitted Holders beneficially own (as defined in clause (1)
above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Company than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors (for the purposes of this clause (2), such other person shall
be deemed to beneficially own any Voting Stock of a specified corporation
held by a parent corporation, if such other person is the beneficial
owner (as defined in this clause (2)), directly or indirectly, of more
than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in
clause (1) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of
the board of directors of such parent corporation);
(3) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3% of the directors of the Company
then still in office who were either directors on the Issue Date or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office;
(4) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of
all or substantially all the assets of the Company to another Person
(other than a Person that is controlled by the Permitted Holders), and,
in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or
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exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation.
Within 30 days following any Change of Control, we will mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the right
to require us to purchase such Holder's notes at a purchase price in cash
equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control);
(3) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
If the terms of the Credit Agreement prohibit the Company from making a
Change of Control Offer or from purchasing any notes pursuant thereto, prior to
the mailing of the notice to Holders described in the preceding paragraph, but
in any event within 30 days following any Change of Control, the Company
covenants to:
(1) repay in full any indebtedness outstanding under the Credit Agreement or
offer to repay in full all such indebtedness and repay the Indebtedness
of each lender which has accepted such offer; or
(2) obtain the requisite consent under the Credit Agreement to permit the
purchase of the Notes as described above.
The Company must first comply with the covenant described above before it
will be required to purchase notes in the event of a Change of Control;
PROVIDED, HOWEVER, that the Company's failure to comply with the covenant
described in the preceding sentence or to make a Change of Control offer because
of any such failure shall constitute a Default described in clause (4) under
"--Defaults" below (and not under clause (2) thereof). As a result of the
foregoing, a holder of the Notes may not be able to compel the Company to
purchase the notes unless the Company is able at the time to refinance all of
the Indebtedness outstanding under the Credit Agreement or obtain requisite
consents under the Credit Agreement.
We will not be required to make a Change of Control Offer following a Change
of Control Offer if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by us and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue
thereof.
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The Change of Control purchase feature of the notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the Initial
Purchasers. We have no present intention to engage in a transaction involving a
Change of Control, although it is possible that we could decide to do so in the
future. Subject to the limitations discussed below, we could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect our capital structure or credit ratings.
Restrictions on our ability to Incur additional Indebtedness are contained in
the covenant described under "--Certain Covenants--Limitation on Indebtedness".
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford holders of the notes protection in
the event of a highly leveraged transaction.
The Credit Agreement will prohibit us from purchasing any notes, and will
also provide that the occurrence of certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when we are prohibited from purchasing notes,
we may seek the consent of our lenders to the purchase of Notes or may attempt
to refinance the borrowings that contain such prohibition. If we do not obtain
such a consent or repay such borrowings, we will remain prohibited from
purchasing notes. In such case, our failure to purchase tendered Notes would
constitute an Event of Default under the indenture which would, in turn,
constitute a default under the Credit Agreement. In such circumstances, the
subordination provisions in the indenture would likely restrict payment to the
Holders of notes.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase the notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on us. Finally,
our ability to pay cash to the holders of notes following the occurrence of a
Change of Control may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases.
The provisions under the indenture relative to our obligation to make an
offer to repurchase the notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the
Company or any Restricted Subsidiary may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, (1) the Consolidated Coverage
Ratio exceeds 2.00 to 1.00 if such Indebtedness is Incurred prior to May 15,
2001 or 2.25 to 1.00 if such Indebtedness is Incurred thereafter and (2) the
Consolidated Leverage Ratio would be less than 5.75 to 1.00 if such Indebtedness
is Incurred prior to December 31, 2000 or 5.50 to 1.00 if such Indebtedness is
Incurred thereafter.
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(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness of the Company Incurred pursuant to the Revolving Credit
Facilities; PROVIDED, HOWEVER, that, immediately after giving effect to
any such Incurrence, the aggregate principal amount of all Indebtedness
Incurred under this clause (1) and then outstanding does not exceed the
greater of (A) $110.0 million and (B) 90% of accounts receivable of the
Company and its Restricted Subsidiaries;
(2) Indebtedness of the Company Incurred pursuant to the Term Loan
Facilities; PROVIDED, HOWEVER, that, after giving effect to any such
Incurrence, the aggregate principal amount of all Indebtedness Incurred
under this clause (2) and then outstanding does not exceed $60.0 million
less the aggregate sum of all principal payments with respect to such
Indebtedness pursuant to paragraph (a)(3)(A) of the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock";
(3) Indebtedness of the Company or any Restricted Subsidiary owed to and
held by the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that
any subsequent issuance or transfer of any Capital Stock which results in
any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to the Company
or another Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(4) the notes (other than any additional notes);
(5) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), (3) or (4) of this covenant);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (4) or (5) or this clause (6);
(7) Hedging Obligations under or with respect to Interest Rate Agreements
and Currency Agreements required under the Credit Agreement or entered
into in the ordinary course of business and not for the purpose of
speculation;
(8) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds provided by the Company and
the Restricted Subsidiaries in the ordinary course of their business and
which do not secure other Indebtedness of the Company or any Restricted
Subsidiary (except Indebtedness permitted under the Indenture);
(9) Subsidiary Guaranties of the Subsidiary Guarantors;
(10) the Guarantee of any Indebtedness otherwise permitted to be Incurred
pursuant to the Indenture;
(11) Indebtedness of the Company or any Restricted Subsidiary consisting of
indemnification, adjustment of purchase price, earn-out or similar
obligations, in each case incurred in connection with the acquisition or
disposition of any assets, including shares of Capital Stock or divisions
or lines of business, of the Company or any Restricted Subsidiary; and
(12) Indebtedness of the Company in an aggregate principal amount which,
together with all other Indebtedness of the Company outstanding on the
date of such Incurrence (other than Indebtedness permitted by clauses (1)
through (11) above or paragraph (a)) does not exceed $25 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Indebtedness
shall be
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subordinated to the Notes or the relevant Subsidiary Guaranty, as applicable, to
at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, (1) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above at the time of its Incurrence, the
Company, in its sole discretion, will classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
the above clauses (provided that any Indebtedness classified as Incurred
pursuant to clause (b)(12) above may later be reclassified as having been
Incurred pursuant to paragraph (a) above to the extent that such reclassified
Indebtedness could be Incurred pursuant to paragraph (a) above at the time of
such reclassification) and (2) an item of Indebtedness may be divided and
classified in more than one of the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and
shall not permit any Subsidiary Guarantor to, Incur (1) any Indebtedness if such
Indebtedness is expressly subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable,
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (2) any
Secured Indebtedness that is not Senior Indebtedness unless contemporaneously
therewith effective provision is made to secure the notes or the relevant
Subsidiary Guaranty, as applicable, equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation
on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Issue Date
occurs to the end of the most recent fiscal quarter for which
financial statements are then available prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit); plus
(B) 100% of the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) and the aggregate cash received by the Company as a capital
contribution, in each case subsequent to the Issue Date (other than
an issuance or sale to a Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit
of their employees); plus
(C) the amount by which Indebtedness of the Company or its Restricted
Subsidiaries is reduced on the Company's consolidated balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the
Company or any Restricted Subsidiary convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company (less
the amount of any cash, or the fair value of any other property,
distributed by the Company or such Restricted Subsidiary upon such
conversion or exchange); plus
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(D) an amount equal to the sum of (x) the net reduction in Investments in
any Person resulting from dividends, repayments of loans or advances
or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from such Person, or from the proceeds received
by the Company or any Restricted Subsidiary upon the disposition of
any Investment and (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the
net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the
case of any Person, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or, in the case of any Investment
outstanding on the Issue Date (but not to exceed in the aggregate $10
million) an amount not to exceed the lesser of the amount of such net
reduction or the amount of such Investment.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made by exchange for, or out of the proceeds of
the substantially concurrent sale of, or capital contribution in respect
of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or to a trust established by the Company or
any of its Subsidiaries for the benefit of their employees); PROVIDED,
HOWEVER, that (A) such Restricted Payment shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness
of the Company which is permitted to be Incurred pursuant to the covenant
described under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount
of Restricted Payments;
(3) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; PROVIDED, HOWEVER, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or
result therefrom); PROVIDED FURTHER, HOWEVER, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(4) the repurchase or other acquisition of shares of, or options to purchase
shares of, common stock of the Company or any of its Subsidiaries from
employees, former employees, consultants, directors or former directors
of the Company or any of its Subsidiaries or Parent (or permitted
transferees of such employees, former employees, consultants, directors
or former directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock;
PROVIDED, HOWEVER, that the aggregate amount of such repurchases and
other acquisitions shall not exceed the sum of (A) $5 million plus (B)
the aggregate Net Cash Proceeds received by the Company from the issuance
of such Capital Stock to, or the exercise of options to purchase such
Capital Stock by, employees or directors of the Company or any of its
Subsidiaries that occurs after the Issue Date (to the extent the Net Cash
Proceeds from the sale of such Capital Stock have not otherwise been
applied to the payment of Restricted Payments by virtue of clause (3)(B)
of paragraph (a) above or applied pursuant to clause (b)(1) above) plus
(C) the Net Cash Proceeds actually received by the Company after the
Issue Date from insurance proceeds paid in respect of
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the death or disability of any employee or director; PROVIDED FURTHER,
HOWEVER, that such repurchases and other acquisitions shall be excluded
in the calculation of the amount of Restricted Payments;
(5) dividends, distributions or advances to Parent to the extent required to
pay non-deferrable scheduled cash interest when due on, or the principal
amount at final scheduled maturity of, the Ogden Note; provided, however,
that (A) no Default shall have occurred and be continuing (or would
result therefrom) and (B) Parent shall immediately apply any such
dividend to make such cash interest or principal payment; PROVIDED
FURTHER, HOWEVER, that such dividends, distributions and advances shall
be included in the calculation of the amount of Restricted Payments;
(6) dividends, distributions or advances to Parent to be used by Parent to
pay Federal, state and local taxes payable by Parent and directly
attributable to (or arising as a result of) the operations of the Company
and its Restricted Subsidiaries; PROVIDED, HOWEVER, that (A) the amount
of such dividends shall not exceed the amount that the Company and its
Restricted Subsidiaries would be required to pay in respect of such
Federal, state and local taxes were the Company to pay such taxes as a
stand-alone taxpayer and (B) such dividends pursuant to this clause (6)
are used by Parent for such purposes within 20 days of the receipt of
such dividends; PROVIDED FURTHER, HOWEVER, that such dividends shall be
excluded in the calculation of the amount of Restricted Payments;
(7) dividends, distributions or advances to Parent to the extent necessary
to pay for general corporate and overhead expenses incurred by Parent in
the ordinary course of business; PROVIDED, HOWEVER, that such dividends,
shall not exceed $250,000 in any fiscal year of the Company; PROVIDED
FURTHER, HOWEVER, that such dividends, distributions or advances shall be
included in the calculation of the amount of Restricted Payments;
(8) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock"; PROVIDED,
HOWEVER, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments;
(9) upon the occurrence of a Change of Control and within 60 days after the
completion of the offer to repurchase the notes pursuant to the covenant
described under "--Change of Control" above (including the purchase of
the notes tendered), any purchase or redemption of Subordinated
Obligations required pursuant to the terms thereof as a result of such
Change of Control at a purchase or redemption price not to exceed the
outstanding principal amount thereof, plus any accrued and unpaid
interest; PROVIDED, HOWEVER, that (A) at the time of such purchase or
redemption no Default shall have occurred and be continuing (or would
result therefrom), (B) the Company would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "--Limitation on Indebtedness" after giving pro forma effect to
such Restricted Payment and (C) such purchase or redemption shall be
included in the calculation of the amount of Restricted Payments; or
(10) payments required pursuant to the terms of the Merger Agreement to
consummate the Acquisition by the Company or a Restricted Subsidiary
pursuant to the terms of the Merger Agreement; PROVIDED, HOWEVER, that
such payments shall be excluded in the calculation of the amount of
Restricted Payments;
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
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Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at or
entered into on the Issue Date, or, in the case of the Credit Agreement,
as in effect on the Acquisition Closing Date;
(2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred
as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date;
(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this covenant or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); PROVIDED, HOWEVER, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the
Noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(4) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases or licenses to the extent such
provisions restrict the transfer of the lease or license or the property
leased or licensed thereunder;
(5) any encumbrance or restriction consisting of any restriction on the sale
or other disposition of assets or property securing Indebtedness as a
result of a Lien permitted to be Incurred under the indenture on such
asset or property;
(6) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages;
(7) any restriction with respect to a Restricted Subsidiary imposed pursuant
to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(8) any restriction in any agreement that is not more restrictive than the
restrictions under the terms of the Credit Agreement as in effect on the
closing date of the acquisition.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined
in good faith by the Board of Directors, of the shares and assets subject
to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash equivalents
(provided that such 75% requirement shall not apply to any Asset
Disposition in which the cash or cash equivalents portion of the
consideration received therefor is no less than an amount equal to the
product of (x) six and (y) the amount of EBITDA directly attributable to
the assets or Capital Stock included in such Asset Disposition); and
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(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be):
(A) first, to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness or Indebtedness (other than any Disqualified Stock) of a
Restricted Subsidiary (in each case other than Indebtedness owed to
the Company or an Affiliate of the Company) within one year from the
later of the date of such Asset Disposition or the receipt of such
Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company
elects, to acquire Additional Assets within one year from the later
of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer
to the holders of the Notes (and to holders of other Senior
Subordinated Indebtedness designated by the Company) to purchase
Notes (and such other Senior Subordinated Indebtedness) pursuant to
and subject to the conditions contained in the indenture; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for any
purpose not prohibited by the terms of the indenture;
PROVIDED, HOWEVER, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or
such Restricted Subsidiary shall permanently retire such Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant exceeds $10 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Permitted Investments or used to temporarily reduce loans outstanding under
Revolving Credit Facilities.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition; and
(2) securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C)
above, the Company will be required to purchase notes tendered pursuant to an
offer by the Company for the notes (and other Senior Subordinated Indebtedness)
at a purchase price of 100% of their principal amount, without premium, plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
indenture. If the aggregate purchase price of notes (and any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(3)(D)
above. If the aggregate purchase price of the securities tendered exceeds the
Net Available Cash allotted to purchase
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thereof, the Company will select the securities to be purchased on a pro rata
basis but in denominations of $1,000 or multiples thereof. The Company shall not
be required to make such an offer to purchase notes (and other Senior
Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor is less than $10 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained
at the time of the Affiliate Transaction in arm's-length dealings with a
Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $1
million, the terms of the Affiliate Transaction are set forth in writing
and a majority of the non-employee directors of the Company disinterested
with respect to such Affiliate Transactions have determined in good faith
that the criteria set forth in clause (1) are satisfied and have approved
the relevant Affiliate Transaction as evidenced by a Board resolution;
and
(3) if such Affiliate Transaction involves an amount in excess of $10
million, the Board of Directors shall also have received a written
opinion from an investment banking firm of national prominence that is
not an Affiliate of the Company to the effect that such Affiliate
Transaction is fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries.
(b) The provisions of the preceding paragraph (a) shall not prohibit:
(1) any Investment (other than a Permitted Investment) or other Restricted
Payment, in each case permitted to be made pursuant to the covenant
described under "--Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors;
(3) the grant of stock options or similar rights to employees and directors
of the Company pursuant to plans approved by the Board of Directors;
(4) loans or advances to employees in the ordinary course of business in
accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $3 million in the aggregate
outstanding at any one time;
(5) the payment of reasonable compensation or employee benefit arrangements
to and indemnity provided for the benefit of directors, officers or
employees of the Company or its Restricted Subsidiaries in the ordinary
course of business;
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(6) any employment, noncompetition or confidentiality agreements entered
into by the Company or any Restricted Subsidiary with its employees in
the ordinary course of business.
(7) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries;
(8) the payment by the Company of fees to Caxton-Iseman and its Affiliates
in connection with any acquisition transaction entered into by the
Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the
aggregate amount of fees paid to Caxton-Iseman and its Affiliates in
respect of any acquisition transaction shall not exceed 1% of the total
acquisition cost of such transaction;
(9) the accrual (and, to the extent provided below, the payment) by the
Company of management fees payable to Caxton-Iseman and its Affiliates in
an amount not to exceed $1 million in any fiscal year of the Company;
PROVIDED, HOWEVER, that the amount of such fees actually paid in any
fiscal year does not exeed an amount equal to the sum of (A) in the event
the Consolidated Coverage Ratio on the date of any proposed payment is
greater than 2.0 to 1.0 but less than or equal to 2.25 to 1.0, $500,000,
plus (B) in the event the Consolidated Coverage Ratio on the date of any
proposed payment exceeds 2.25 to 1.0, an additional $500,000, in each
case together with the amount of unpaid management fees accrued in any
prior fiscal year that could have been paid in such prior fiscal year had
the Consolidated Coverage Ratio applicable to clause (A) or (B) on the
date of such proposed payment been in effect on the date of accrual of
such prior year's fee; PROVIDED FURTHER, HOWEVER, that at the time of
such accrual or payment, no other Default shall have occurred and be
continuing (or result therefrom);
(10) any Affiliate Transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries; and
(11) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company shall not sell or otherwise dispose of any Capital Stock of a
Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
except:
(1) to the Company or a Wholly Owned Subsidiary;
(2) directors' qualifying shares;
(3) the issuance of shares of common stock of Interactive Media Corporation
pursuant to the terms of any agreement or option related thereto as in
effect on the Acquisition Closing Date;
(4) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary; or
(5) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after
giving effect thereto would have been permitted to be made under the
covenant described under "--Limitation on Restricted Payments" if made on
the date of such issuance, sale or other disposition.
Notwithstanding the foregoing, the issuance or sale of shares of Capital
Stock of any Restricted Subsidiary of the Company will not violate the
provisions of the immediately preceding sentence if such shares are issued or
sold in connection with (x) the formation or capitalization of a Restricted
Subsidiary or (y) a single transaction or a series of substantially
contemporaneous transactions whereby such Restricted Subsidiary becomes a
Restricted Subsidiary of the Company by reason of the acquisition of securities
or assets from another Person.
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MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, all the obligations of the
Company under the notes and the indenture;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation
on Indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture (if any) comply with the
indenture.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (if not such Subsidiary)
shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws
of the United States of America, or any State thereof or the District of
Columbia, and such Person shall expressly assume, by a Guaranty
Agreement, in a form satisfactory to the Trustee, all the obligations of
such Subsidiary, if any, under its Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or transactions on a
pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result
of such transaction as having been issued by such Person at the time of
such transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement, if any, complies with the
indenture;
PROVIDED, HOWEVER, that the preceding restrictions will not be applicable if, in
connection with such consolidation, merger, conveyance, transfer or lease, the
Subsidiary Guarantor will be released from its obligations under the Subsidiary
Guaranty as described under "--Guaranties".
The Successor Company will be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the indenture, and the predecessor Company, except in the case of
a lease, shall be released from the obligation to pay the principal of and
interest on the notes.
FUTURE GUARANTORS
The Company will cause each domestic Restricted Subsidiary organized or
acquired after the Issue Date and that Incurs Indebtedness (including any
Guarantees) to execute and deliver to the Trustee a
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Guaranty Agreement pursuant to which such Restricted Subsidiary will Guarantee
payment of the Notes on the same terms and conditions as those set forth in the
indenture.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
(unless the SEC will not accept such filing) with the SEC and provide the
Trustee and Noteholders with such annual reports and such information, documents
and other reports as are specified in Sections 13 and 15(d) of the Exchange Act
and applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filings of such information, documents and reports under such Sections.
In addition, whether or not required by the SEC, we will file a copy of all
of the information and reports referred to above with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing).
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest or any Additional Amounts on the
notes when due, continued for 30 days;
(2) a default in the payment of principal of any note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise;
(3) the failure by the Company to comply with its obligations under
"--Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after written notice
with any of its obligations in the covenants described above under
"Change of Control" (other than a failure to purchase notes) or under
"--Certain Covenants" under "--Limitation on Indebtedness", "--Limitation
on Restricted Payments", "--Limitation on Restrictions on Distributions
from Restricted Subsidiaries", "--Limitation on Sales of Assets and
Subsidiary Stock" (other than a failure to purchase notes), "--Limitation
on Affiliate Transactions", "--Limitation on the Sale or Issuance of
Capital Stock of Restricted Subsidiaries", "--Future Guarantors" or
"--SEC Reports";
(5) the failure by the Company to comply for 60 days after written notice
with its other agreements contained in the indenture;
(6) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5 million (the "cross
acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company, a Subsidiary Guarantor or a Significant Subsidiary (the
"bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $5 million
is entered against the Company or a Significant Subsidiary, remains
outstanding for a period of 60 consecutive days following such judgment
and is not discharged, waived or stayed within 10 days after written
notice (the "judgment default provision"); or
(9) a Subsidiary Guaranty ceases to be in full force and effect (other than
in accordance with the terms of such Subsidiary Guaranty) or a Subsidiary
Guarantor denies or disaffirms its obligations under its Subsidiary
Guaranty.
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However, a default under clauses (4), (5), (6) and (8) will not constitute
an Event of Default until the Trustee or the holders of 25% in principal amount
of the outstanding Notes notify the Company of the default and the Company does
not cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the notes will IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
notes may rescind any such acceleration with respect to the notes and its
consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders of the notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a note
may pursue any remedy with respect to the indenture or the notes unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding Notes have
not given the Trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a Note or that would involve the Trustee in personal liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the notes notice of the Default within 90 days after
it occurs. Except in the case of a Default in the payment of principal of or
interest on any note, the Trustee may withhold notice if and so long as a
committee of its trust officers determines that withholding notice is not
opposed to the interest of the holders of the notes. In addition, we are
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. We are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action we
are taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the consent
of the holders of a majority in principal amount of the notes then outstanding
(including consents obtained in connection with
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a tender offer or exchange for the notes) and any past default or compliance
with any provisions may also be waived with the consent of the holders of a
majority in principal amount of the notes then outstanding. However, without the
consent of each holder of an outstanding note affected thereby, an amendment may
not, among other things:
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on any
note;
(3) reduce the principal of or extend the Stated Maturity of any note;
(4) reduce the amount payable upon the redemption of any Note or change the
time at which any note may be redeemed as described under "--Optional
Redemption" above;
(5) make any note payable in money other than that stated in the note;
(6) impair the right of any holder of the notes to receive payment of
principal of and interest on such holder's notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such holder's notes;
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders; or
(9) make any change in any Subsidiary Guaranty that would adversely affect
the Noteholders.
Notwithstanding the preceding, without the consent of any holder of the
Notes, the Company and Trustee may amend the indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of the Company under the indenture;
(3) to provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated notes are described in Section
163(f)(2)(B) of the Code);
(4) to add guarantees with respect to the notes and secure the notes;
(5) to add to the covenants of the Company for the benefit of the holders of
the notes or to surrender any right or power conferred upon the Company;
(6) to make any change that does not adversely affect the rights of any
holder of the notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of such Senior Indebtedness (or their
Representative) consents to such change.
The consent of the holders of the notes is not necessary under the indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
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After an amendment under the indenture becomes effective, we are required to
mail to holders of the Notes a notice briefly describing such amendment.
However, the failure to give such notice to all holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The notes will be issued in registered form and will be transferable only
upon the surrender of the notes being transferred for registration of transfer.
We may require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
DEFEASANCE
At any time, we may terminate all our obligations under the notes and the
indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and
to maintain a registrar and paying agent in respect of the notes.
In addition, at any time we may terminate our obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clauses (3) under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the notes may not be accelerated because of an Event of Default
specified in clause (4), (6), (7) (with respect only to Significant
Subsidiaries) or (8) under "--Defaults" above or because of the failure of the
Company to comply with clause (3) under "--Certain Covenants--Merger and
Consolidation" above. If we exercise our legal defeasance option or our covenant
defeasance option, each Subsidiary Guarantor will be released from all of its
obligations with respect to its Subsidiary Guaranty and the Security Agreements.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel to
the effect that holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE AND EXCHANGE AGENT
IBJ Whitehall Bank & Trust Company is to be the Trustee under the indenture,
and we have also appointed it as Registrar, Paying Agent and Exchange Agent with
regard to the notes.
The indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
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transactions; PROVIDED, HOWEVER, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. If an Event of Default occurs (and is not cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request of any Holder of notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense and then only to the extent required by
the terms of the indenture.
GOVERNING LAW
The indenture and the notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ACQUISITION" means the acquisition of Analysis & Technology, Inc. by the
Company
"ACQUISITION CLOSING DATE" means the date on which the Company consummates
the Acquisition.
"ADDITIONAL ASSETS" means any:
(1) property, plant or equipment used in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
PROVIDED, HOWEVER, that any such Restricted Subsidiary described in
clauses (2) or (3) above is primarily engaged in a Related Business.
"AFFILIATE" of any specified Person means:
(1) any other Person, directly or indirectly, controlling or controlled by;
or
(2) under direct or indirect common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants described
under "--Certain Covenants--Limitation on Restricted Payments", "--Certain
Covenants--Limitation on Affiliate Transactions" and "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate"
shall also mean any beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of Capital Stock representing 10% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
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"ASSET DISPOSITION" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted
Subsidiary (other than, in the case of clauses (1) and (2) above and this
clause (3):
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary;
(B) leases of excess space in the ordinary course of business;
(C) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Restricted Payment permitted by the
covenant described under "--Certain Covenants--Limitation on
Restricted Payments" or a Permitted Investment; and
(D) disposition of assets with a fair market value of less than
$200,000).
"ATTRIBUTABLE DEBT" in respect of a Sale/ Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/ Leaseback Transaction (including any period for which such lease has been
extended).
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of, or redemption or similar payment with respect to, such Indebtedness,
multiplied by the amount of such payment by
(2) the sum of all such payments.
"BANKS" means any obligee under the Credit Agreement.
"BANK INDEBTEDNESS" means all Obligations pursuant to the Credit Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL LEASE OBLIGATIONS" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
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"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are then
available prior to the date of such determination to (y) Consolidated Interest
Expense for such four fiscal quarters; PROVIDED, HOWEVER, that:
(1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness
since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on
a pro forma basis to such Indebtedness as if such Indebtedness had been
Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period (except that, in making such computation, the
amount of Indebtedness under any revolving credit facility outstanding on
the date of such calculation shall be computed based on (A) the average
daily balance of such Indebtedness during such four fiscal quarters or such
shorter period when such facility was outstanding or (B) if such facility
was created after the end of such four fiscal quarters, the average balance
of such Indebtedness during the period from the date of creation of such
facility to the date of the computation),
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased or
otherwise discharged (in each case other than Indebtedness Incurred under
any revolving credit facility unless such Indebtedness has been permanently
repaid and has not been replaced) on the date of the transaction giving rise
to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro
forma basis as if such discharge had occurred on the first day of such
period and as if the Company or such Restricted Subsidiary has not earned
the interest income actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or otherwise
discharge such Indebtedness,
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition
for such period, or increased by an amount equal to the EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale),
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or
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substantially all of a business or a product line, operating unit or similar
portion of a business, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period and
(5) if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made
any Asset Disposition, any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
under clause (4) above, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company,
and such pro forma calculations shall include (A)(x) the savings in cost of
revenues that would have resulted from using the Company's or its Restricted
Subsidiaries', as applicable, actual costs for comparable goods and services
during the comparable period and (y) other savings in cost of revenues or
eliminations of selling, general and administrative expenses as determined by a
responsible financial or accounting Officer of the Company in good faith in
connection with the Company's consideration of such transaction and consistent
with the Company's experience in similar transactions less (B) the incremental
expenses that would be included in cost of revenues and selling, general and
administrative expenses that would have been incurred by the Company or its
Restricted Subsidiaries, as applicable, in the operation or ownership of such
acquired assets during such period. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest of such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to capital leases and the interest expense
attributable to leases constituting part of a Sale/ Leaseback
Transaction;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expenses;
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(6) net costs associated with Hedging Obligations (including amortization of
fees);
(7) dividends paid in cash or Disqualified Stock in respect of all Preferred
Stock of Restricted Subsidiaries and Disqualified Stock of the Company
held by Persons other than the Company or a Wholly Owned Subsidiary;
(8) interest incurred in connection with Investments in discontinued
operations;
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(9) interest actually paid by the Company or a Restricted Subsidiary under a
Guarantee of Indebtedness of any other Person; and
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust; and
LESS, to the extent included in such total interest expense, the
amortization during such period of debt issuance costs; PROVIDED, HOWEVER, that
the aggregate amount of amortization relating to any such debt issuance costs
deducted in calculating Consolidated Interest Expense shall not exceed 5% of the
aggregate amount of the financing giving rise to such debt issuance costs.
"CONSOLIDATED LEVERAGE RATIO" as of any date means the ratio of (x) the
aggregate amount of Indebtedness (net of cash and marketable securities) of the
Company and its Restricted Subsidiaries as of such date of determination to (y)
the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters for which financial statements are then available
prior to such date of determination, in each case with such pro forma
adjustments to consolidated Indebtedness and EBITDA as are appropriate and
consistent with the pro forma provisions set forth in the definition of
Consolidated Coverage Ratio.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person is
not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the Company's
equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations
contained in clause (3) below); and
(B) the Company's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the Company's
equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause);
and
(B) the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated
Net Income;
(4) any gain or loss realized upon the sale or other disposition of any
assets of the Company, its consolidated Subsidiaries or any other Person
(including pursuant to any sale-and-leaseback
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arrangement) which is not sold or otherwise disposed of in the ordinary
course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"CREDIT AGREEMENT" means (1) prior to the Acquisition Closing Date, the
Credit Agreement dated March 18, 1998, by and among the Company and Vector Data
Systems, Inc., the lenders referred to therein and Mellon Bank, N.A., as agent,
as amended, and (2) on or after the Acquisition Closing Date, the Credit
Agreement to be entered into by and among, the Company, certain of its
Subsidiaries, the lenders referred to therein, and Credit Suisse First Boston,
as agent, together with the related documents thereto (including the term loans
and revolving loans thereunder, reimbursement obligations under any letters of
credit, any guarantees and security documents), as amended, extended, renewed,
replaced, restated, supplemented or otherwise modified (in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions) from time to time, and any agreement (and related document)
governing Indebtedness incurred to Refinance, in whole or in part, the
borrowings and commitments then outstanding or permitted to be outstanding under
such Credit Agreement or a successor Credit Agreement, whether by the same or
any other lender or group of lenders.
"CURRENCY AGREEMENT" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means:
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $10 million and is specifically designated by the
Company in any instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the
indenture.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
notes; PROVIDED, HOWEVER, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders
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thereof the right to require such Person to purchase or redeem such Capital
Stock upon the occurrence of an "asset sale" or "change of control" shall not
constitute Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock
than the terms applicable to the notes and described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" and
"--Certain Covenants--Change of Control"; and
(2) any such requirement only becomes operative after compliance with such
terms applicable to the notes, including the purchase of any notes
tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non- cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE NOTES" means the debt securities of the Company issued pursuant to
the indenture in exchange for, and in an aggregate principal amount at maturity
equal to, the notes, in compliance with the terms of the Registration Rights
Agreement.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants; and
(2) statements and pronouncements of the Financial Accounting Standards
Board.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to
take-or-pay or to maintain financial statement conditions or otherwise);
or
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(2) entered into for the purpose of assuring in any other manner the obligee
of such Indebtedness of the payment thereof;
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation. The Ogden Note will not be deemed to be
Guaranteed unless Anteon executes a guaranty thereof.
"GUARANTY AGREEMENT" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the
Company's obligations with respect to the notes on the terms provided for in the
Indenture.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a note is registered
on the Registrar's books.
"INCUR" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/ Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to any Preferred Stock (but excluding, in each case, any
accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
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(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date; PROVIDED, HOWEVER, that
the amount outstanding at any time of any Indebtedness issued with original
issue discount shall be deemed to be the face amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in accordance with GAAP. Notwithstanding
the foregoing, Indebtedness shall not include any liability for Federal, state,
local or other taxes owed or owing to any governmental entity.
"INTEREST RATE AGREEMENT" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"INVESTMENT" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary", the definition
of "Restricted Payment" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the
Company's "Investment" in such Subsidiary at the time of such
redesignation less (B) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"ISSUE DATE" means the date on which the notes are originally issued.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of March
7, 1999, by and among the Company, Buffalo Acquisition Corporation and Analysis
& Technology, Inc.
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"NET AVAILABLE CASH" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of:
(1) all legal, title, recording or transfer tax, accounting, consulting or
similar transaction expenses, brokerage or other fees, commissions and
expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence
of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset
Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"NET CASH PROCEEDS", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, printing costs,
filing and listing fees, discounts or commissions and brokerage, consultant and
other fees or expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"OBLIGATIONS" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"OGDEN NOTE" means the Amended and Restated, Non Negotiable, Subordinated 9%
Promissory Note due April 22, 2004 of Parent in favor of Ogden Technology
Services Corporation, dated as of October 1, 1998, in the principal amount of
$3,650,000.
"PARENT" means Azimuth Technologies, Inc., a Delaware corporation, and any
successor corporation.
"PERMITTED HOLDERS" means (i) Caxton Corporation, Frederick J. Iseman,
Steven Lefkowitz, Joseph A. Kampf, Robert A. Ferris and any other Person who is
a controlled Affiliate of any of the foregoing and any member of senior
management of the Company on the Issue Date and (ii) any Related Party of any of
the foregoing.
"PERMITTED INVESTMENT" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
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(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms
as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(6) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted
Subsidiary;
(7) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash portion
of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock"; and
(9) additional Investments made after the Issue Date in an aggregate amount
which, together with all other Investments made pursuant to this clause
(9) that are outstanding, do not exceed $10 million.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"PRINCIPAL" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
common stock of Parent or the Company pursuant to an effective registration
statement under the Securities Act.
"PUBLIC MARKET" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 10% of the total issued and outstanding common
stock of Parent or the Company, as applicable, has been distributed by means of
an effective registration statement under the Securities Act or sales pursuant
to Rule 144 under the Securities Act.
"RATING AGENCY" means Standard & Poor's Ratings Group, Inc. and Moody's
Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's
Investors Service, Inc. or both shall not make a rating on the notes publicly
available, a nationally recognized statistical rating agency or agencies, as the
case may be, selected by the Company (as certified by a resolution of the Board
of Directors) which shall be substituted for Standard & Poor's Ratings Group,
Inc. or Moody's Investors Service, Inc. or both, as the case may be.
"REFINANCE" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, replace, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
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"REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding
or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include
(A) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated May 6, 1999, among the Company, Credit Suisse First Boston Corporation,
Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated.
"RELATED BUSINESS" means the business of the Company and its Restricted
Subsidiaries on the Issue Date or the Acquisition Closing Date and any business
that in the good faith judgment of the Board of Directors is related, ancillary
or complementary thereto.
"RELATED PARTY" means (1) any controlling stockholder, controlling member,
general partner, majority owned Subsidiary, or spouse or immediate family member
(in the case of an individual) of any Permitted Holder or (2) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons holding a controlling interest of which consist
solely of one or more Permitted Holders and/or such other Persons referred to in
the immediately preceding clause (1).
"REPRESENTATIVE" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"RESTRICTED PAYMENT" with respect to any Person means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person) or
similar payment to the direct or indirect holders of its Capital Stock
(other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than
pro rata dividends or other distributions made by a Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of the Company held by any Person or of any Capital
Stock of a Restricted Subsidiary held by any Affiliate of the Company
(other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of
the Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any
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Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of such purchase,
repurchase or other acquisition); or
(4) the making of any Investment in any Person (other than a Permitted
Investment).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITIES" means any revolving credit facility contained
in the Credit Agreement and any other facility or financing arrangement that
Refinances or replaces, in whole or in part, any such revolving credit facility.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"SECURED INDEBTEDNESS" means any Indebtedness of the Company secured by a
Lien.
"SENIOR INDEBTEDNESS" means, with respect to any Person on any date of
determination:
(1) Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter Incurred (including the Indebtedness of such Person under the
Credit Agreement or any Guarantee thereof); and
(2) accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to
such Person whether or not post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable unless, in the case of clauses (1) and (2), in the
instrument creating or evidencing the same or pursuant to which the same
is outstanding, it is provided that such obligations are subordinate in
right of payment to the notes;
PROVIDED, HOWEVER, that Senior Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary;
(2) any liability for Federal, state, local or other taxes owed or owing by
such Person;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior in any respect to any
other Indebtedness or other obligation of such Person;
(5) the Ogden Note or the Techmatics Notes; or
(6) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the indenture.
"SENIOR SUBORDINATED INDEBTEDNESS" means (1) with respect to the Company,
the notes and any other Indebtedness of the Company that specifically provides
that such Indebtedness is to rank PARI PASSU with the notes in right of payment
and is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness of the Company
and (2) with respect to each Subsidiary Guarantor, its Subsidiary Guaranty of
the notes and any other Indebtedness of such Subsidiary Guarantor that
specifically provides that such Indebtedness is to rank PARI PASSU with such
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Subsidiary Guaranty in right of payment and is not subordinated by its terms in
right of payment to any Indebtedness or other obligation of such Subsidiary
Guarantor which is not Senior Indebtedness of such Subsidiary Guarantor.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"SUBORDINATED OBLIGATION" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is expressly subordinate or junior in right of payment to the
notes or, in the case of a Subsidiary Guarantor, its Subsidiary Guaranty, in
each case pursuant to a written agreement to that effect.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association, company, partnership or other business entity of which more than
50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"SUBSIDIARY GUARANTOR" means each Subsidiary of the Company that Guarantees
the Company's obligations with respect to the notes pursuant to the terms of the
indenture.
"SUBSIDIARY GUARANTY" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the notes.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of
America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating)
or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above;
(4) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United
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States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group; and
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"TERM LOAN FACILITIES" means the term loan facilities contained in the
Credit Agreement and any other facility or financing arrangement that Refinances
in whole or in part any such term loan facility.
"UNRESTRICTED SUBSIDIARY" means:
(1) any Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated or another Unrestricted Subsidiary; PROVIDED, HOWEVER, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under the covenant described under "--Certain Covenants--Limitation
on Restricted Payments".
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees (or persons performing
similar functions) thereof.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in the
form of one or more registered exchange notes in global form without coupons. We
will deposit each global note on the date of the closing of this exchange offer
with, or on behalf of, The Depository Trust Company in New York, New York, and
register the exchange notes in the name of The Depository Trust Company or its
nominee, or will leave these notes in the custody of the trustee.
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THE DEPOSITORY TRUST COMPANY'S PROCEDURES
For your convenience, we are providing you with a description of the
operations and procedures of The Depository Trust Company. The operations and
procedures of The Depository Trust Company are solely within the control of its
settlement system however and may change from time to time. We are not
responsible for these operations and procedures and urge you to contact The
Depository Trust Company or its participants directly to discuss these matters.
The Depository Trust Company has advised us that it is a limited-purpose
trust company created to hold securities for its participating organizations and
to facilitate the clearance and settlement of transactions in those securities
between its participants through electronic book entry changes in the accounts
of these participants. These direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Access to The Depository Trust Company's system is also indirectly available to
other entities that clear through or maintain a direct or indirect, custodial
relationship with a direct participant. The Depository Trust Company may hold
securities beneficially owned by other persons only through its participants and
the ownership interests and transfers of ownership interests of these other
persons will be recorded only on the records of the participants and not on the
records of The Depository Trust Company.
The Depository Trust Company has also advised us that, in accordance with
its procedures, (1) upon deposit of the global notes, it will credit the
accounts of the direct participants with an interest in the global notes, and
(2) it will maintain records of the ownership interests of these direct
participants in the global notes and the transfer of ownership interests by and
between direct participants. The Depository Trust Company will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, indirect participants or other owners of beneficial interests in
the global notes. Both direct and indirect participants must maintain their own
records of ownership interests of, and the transfer of ownership interests by
and between, indirect participants and other owners of beneficial interests in
the global notes.
Investors in the global notes may hold their interests in the notes directly
through The Depository Trust Company if they are direct participants in The
Depository Trust Company or indirectly through organizations that are direct
participants in The Depository Trust Company. All interests in a global note may
be subject to the procedures and requirements of The Depository Trust Company.
The laws of some states require that some persons take physical delivery in
definitive certificated form of the securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a global note to these
persons. Because The Depository Trust Company can act only on behalf of direct
participants, which in turn act on behalf of indirect participants and others,
the ability of a person having a beneficial interest in a global note to pledge
its interest to persons or entities that are not direct participants in The
Depository Trust Company or to otherwise take actions in respect of its
interest, may be affected by the lack of physical certificates evidencing the
interests.
Except as described below, owners of interests in the global notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders of these notes under the indenture for any purpose.
Payments with respect to the principal of and interest on any notes
represented by a global note registered in the name of The Depository Trust
Company or its nominee on the applicable record date will be payable by the
trustee to or at the direction of The Depository Trust Company or its nominee in
its capacity as the registered holder of the global note representing these
notes under the indenture. Under the terms of the indenture, we and the trustee
will treat the person in whose names the notes are registered, including notes
represented by global notes, as the owners of the notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal and interest on global notes registered in the name of
The Depository Trust Company or its nominee will be
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payable by the trustee to The Depository Trust Company or its nominee as the
registered holder under the indenture. Consequently, none of Anteon, the trustee
or any of our agents, or the trustee's agents has or will have any
responsibility or liability for (1) any aspect of The Depository Trust Company's
records or any direct or indirect participant's records relating to, or payments
made on account of, beneficial ownership interests in the global notes or for
maintaining, supervising or reviewing any of The Depository Trust Company's
records or any direct or indirect participant's records relating to the
beneficial ownership interests in any global note or (2) any other matter
relating to the actions and practices of The Depository Trust Company or any of
its direct or indirect participants.
The Depository Trust Company has advised us that its current practice, upon
receipt of any payment in respect of securities such as the notes, including
principal and interest, is to credit the accounts of the relevant participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interest in the
security as shown on its records, unless it has reasons to believe that it will
not receive payment on the payment date. Payments by the direct and indirect
participants to the beneficial owners of interests in the global note will be
governed by standing instructions and customary practice and will be the
responsibility of the direct or indirect participants and will not be the
responsibility of The Depository Trust Company, the trustee or us.
Neither Anteon nor the trustee will be liable for any delay by The
Depository Trust Company or any direct or indirect participant in identifying
the beneficial owners of the notes and Anteon and the trustee may conclusively
rely on, and will be protected in relying on, instructions from The Depository
Trust Company for all purposes, including with respect to the registration and
delivery, and the respective principal amounts, of the notes.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
participants to whose account The Depository Trust Company has credited the
interests in the global notes and only in respect of the portion of the
aggregate principal amount of the notes as to which the participant or
participants has or have given that direction. However, if there is an event of
default with respect to the notes, The Depository Trust Company reserves the
right to exchange the global notes for legended notes in certificated form and
to distribute them to its participants.
Although The Depository Trust Company has agreed to these procedures to
facilitate transfers of interests in the global notes among participants in The
Depository Trust Company, it is under no obligation to perform or to continue to
perform these procedures and may discontinue them at any time. None of Anteon,
the trustee or any of our or the trustee's respective agents will have any
responsibility for the performance by The Depository Trust Company and its
direct or indirect participants of their respective obligations under the rules
and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note will be exchangeable for definitive notes in registered
certificated form if:
(1) The Depository Trust Company notifies us that it is unwilling or unable
to continue as depository for the global notes and we fail to appoint a
successor depository within 90 days,
(2) The Depository Trust Company ceases to be a clearing agency registered
under the Exchange Act,
(3) we elect to cause the issuance of the certificated notes upon a notice
of the trustee,
(4) a default or event of default under the indenture for the notes has
occurred and is continuing, or
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(5) a request to that effect is made but only upon prior written notice
given to the trustee by or on behalf of The Depository Trust Company in
accordance with the indenture.
In all cases, certificated notes delivered in exchange for any global note
or beneficial interests in a global note will be registered in the name, and
issued in any approved denominations, requested by or on behalf of The
Depository Trust Company, in accordance with its customary procedures.
SAME DAY SETTLEMENT
We expect that the interests in the global notes will be eligible to trade
in The Depository Trust Company's Same-Day Funds Settlement System. As a result,
secondary market trading activity in these interests will settle in immediately
available funds, subject in all cases to the rules and procedures of The
Depository Trust Company and its participants. We expect that secondary trading
in any certificated notes will also be settled in immediately available funds.
PAYMENT
The indenture requires that payments in respect of the notes represented by
global notes, including principal and interest, be made by wire transfer of
immediately available funds to the accounts specified by the holder of the
global notes. With respect to notes in certificated form, we will make all
payments of principal and interest on the notes at our office or agency
maintained for that purpose within the city and state of New York. This office
will initially be the office of the paying agent maintained for that purpose. At
our option however, we may make these installments of interest by (1) check
mailed to the holders of notes at their respective addresses provided in the
register of holder of notes or (2) transfer to an account located in the United
States maintained by the payee.
YEAR 2000
The Depository Trust Company has advised us that its management is aware
that some computer applications, systems, and the like for processing data that
are dependent upon calendar dates, including dates before, on and after January
1, 2000, may encounter year 2000 problems. The Depository Trust Company has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions, including principal and interest
payments, to security holders, book-entry deliveries and settlement of trades
within The Depository Trust Company, continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, The Depository Trust Company's plan includes a testing
phase, which is expected to be completed within the appropriate time frame.
However, The Depository Trust Company's ability to perform its services properly
is also dependent upon other parties, including issuers and their agents, as
well as third party vendors from whom The Depository Trust Company licenses
software and hardware, and third party vendors on whom The Depository Trust
Company relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Depository Trust Company has informed its participants and other members of the
financial community that it is contacting and will continue to contact third
party vendors from whom The Depository Trust Company acquires services to:
- impress upon them the importance of these services being year 2000
compliant, and
- determine the extent of their efforts for year 2000 remediation and, as
appropriate, testing of their services.
In addition, The Depository Trust Company is in the process of developing
contingency plans as it deems appropriate. According to The Depository Trust
Company, the above information with respect to The Depository Trust Company has
been provided to its participants and other members of the financial community
for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following general discussion summarizes certain of the material U.S.
Federal income and estate tax aspects of the exchange of initial notes for
exchange notes in accordance with the exchange offer, and the ownership and
disposition of the exchange notes. This discussion is a summary for general
information only and is limited in the following ways:
- The discussion only covers holders of exchange notes that exchange initial
notes for exchange notes in accordance with the exchange offer.
- The discussion only covers holders of exchange notes that hold the
exchange notes as capital assets (that is, for investment purposes), and
that do not have a special tax status.
- The discussion covers only the general tax consequences to holders of the
exchange notes. It does not cover tax consequences that depend upon a
holder's individual tax circumstances.
- The discussion is based on current law. Changes in the law may change the
tax treatment of the exchange notes on a prospective or retroactive basis.
- The discussion does not cover state, local or foreign law.
- The discussion does not apply to holders owning 10% or more of the voting
stock of the Company, or corporate holders that are controlled foreign
corporations with respect to the Company.
We have not sought and will not seek any rulings or opinions from the
Internal Revenue Service or counsel with respect to the matters discussed below.
There can be no assurance that the Internal Revenue Service will not take
positions about the tax treatment of the exchange notes which are different from
those that we discuss.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT
MAY VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
EXCHANGE OFFER AND THE OWNERSHIP OF THE INITIAL NOTES OR THE EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The tax consequences depend upon whether you are a U.S. holder or a non-U.S.
holder. A U.S. holder is:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized under U.S.
law (Federal or state);
- an estate the income of which is subject to U.S. Federal income taxation
regardless of its sources;
- a trust if a U.S. court is able to exercise primary jurisdiction over
administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust; or
- any other person whose worldwide income and gain is otherwise subject to
U.S. Federal income taxation on a net basis.
A non-U.S. holder is a holder that is not a U.S. holder.
129
<PAGE>
TAXATION OF HOLDERS ON EXCHANGE
The exchange of initial notes for exchange notes in accordance with the
exchange offer will not be treated as an exchange or otherwise as a taxable
event to holders. Consequently, the tax treatment to the holders on the exchange
will be as follows:
- no gain or loss will be realized by a holder upon receipt of an exchange
note;
- the holding period of the exchange note will include the holding period of
the initial note exchanged the exchange note; and
- the adjusted tax basis of the exchange note will be the same as the
adjusted tax basis of the initial note exchanged for the exchange note
immediately before the exchange.
Further, the U.S. tax consequences of ownership and disposition of any
exchange note should be the same as the U.S. tax consequences of ownership and
disposition of an initial note. See "Tax Consequences to U.S. Holders; Sale,
Exchange or Redemption of the Notes" and "Tax Consequences to Non-U.S. Holders;
Sale, Exchange or Redemption of the Notes" below.
TAX CONSEQUENCES TO U.S. HOLDERS
INTEREST
- If you are a cash method taxpayer (including most individual holders), you
must report the interest on your income when it is received by you.
- If you are an accrual method taxpayer, you must report the interest on
your income as it accrues.
REGISTERED EXCHANGE OFFER
Under certain circumstances described above, we will be required to pay
additional interest on the Notes if we fail to comply with certain of our
obligations under the Registration Rights Agreement. See "Description of the
Notes--Registered Exchange Offer; Registration Rights." Although the matter is
not free from doubt, such additional interest should be treated as a payment of
additional interest on the exchange notes for U.S. Federal income tax purposes,
with the following results:
- If you are a cash method taxpayer (including most individual holders),
such additional interest will be taxable to you as ordinary income when it
is received by you.
- If you are an accrual method taxpayer, such additional interest will be
taxable to you as ordinary income as it accrues.
It is possible, however, that the Internal Revenue Service may take a
different position, in which case you might be required to include such
additional interest in income as it accrues or becomes fixed (regardless of your
regular method of accounting).
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
On a sale, exchange, retirement or other disposition of an exchange note:
- You will have taxable gain or loss equal to the difference between the tax
basis of the note and amount received on the sale, exchange, retirement or
other disposition.
- Any gain or loss will generally be capital gain or loss, and will be
long-term capital gain or loss if the Note was held for more than one
year.
- If you sell the exchange note between interest payment dates, a portion of
the amount you receive reflects interest that has accrued on the exchange
note but has not yet been paid by the sale date. That amount is treated as
ordinary interest income and not as sale proceeds.
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<PAGE>
- You will not have any taxable gain or loss if the notes are exchanged for
exchange notes in the Registered Exchange Offer. You will have the same
basis and holding period in the exchange notes as you had in the notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the tax rules concerning information reporting to the Internal Revenue
Service:
- We are required to provide information to the Internal Revenue Service
concerning interest and redemption proceeds we pay to you on exchange
notes held by you, unless an exemption applies.
- Similarly, unless an exemption applies, you are required to provide us
with a correct taxpayer identification number for our use in reporting
information to the Internal Revenue Service. If you are an individual,
this is your social security number. You are also required to comply with
other Internal Revenue Service requirements concerning information
reporting.
- If you are subject to these requirements but do not comply, we are
required to withhold 31% of all amounts payable to you on the exchange
notes (including principal payments). If we do withhold part of a payment,
you may use the withheld amount as a credit against your Federal income
tax liability.
- All U.S. holders that are individuals are subject to these requirements.
Certain U.S. holders, including all corporations, tax-exempt organizations
and individual retirement accounts, are exempt from these requirements.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
WITHHOLDING TAXES
If you are a non-U.S. holder, payments of principal and interest on the
exchange notes generally will not be subject to U.S. withholding taxes. However,
in order for the exemption from withholding taxes to apply, you must meet the
following requirements:
- As the beneficial owner of an exchange note, you must provide a statement
to the effect that you are not a U.S. holder. This statement is generally
made on Internal Revenue Service Form W-8. You should consult your own tax
advisor about the specific method to satisfy this requirement.
- You must not be a bank that is making a loan in the ordinary course of its
business.
Non-U.S. holders that do not qualify for exemption from withholding
generally will be subject to withholding of U.S. Federal income tax at a rate of
30%, or lower applicable treaty rate.
New Treasury regulations generally effective for payments made after
December 31, 1999 provide alternative methods for satisfying the certification
requirements described above. The Internal Revenue Service recently issued a
notice announcing the intent of the Treasury Department and the Internal Revenue
Service to amend these regulations so that they normally will not apply to
payments made before January 1, 2001. These regulations also will require, in
the case of notes held by a foreign partnership, that the certification be
provided by the partners rather than by the foreign partnership and that the
partnership provide specified information, including a U.S. taxpayer
identification number.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
If you sell an exchange note or it is redeemed, you will not be subject to
U.S. Federal income tax on any gain unless either of the following applies:
- The gain is connected with a trade or business that you conduct in the
U.S.
131
<PAGE>
- You are an individual and are present in the U.S. for at least 183 days
during the year in which you dispose of the note, and certain other
conditions are satisfied.
U.S. TRADE OR BUSINESS
If you hold an exchange note in connection with a trade or business that you
are conducting in the U.S.:
- Any interest on the Note, and any gain from disposing of the exchange
note, generally will be subject to income tax as if you were a U.S.
holder.
- Any interest and gain will be exempt from U.S. withholding tax as
discussed above as long as you submit to us a proper form, generally
Internal Revenue Service Form 4224, that includes certain required
information. You should consult your own tax advisor about how to satisfy
this requirement. The procedures for satisfying this requirement will
change on January 1, 2000.
- If you are a corporation, you may be subject to a branch profits tax on
your earnings that are connected with your U.S. trade or business,
including earnings from the exchange note. This tax is 30%, but may be
reduced or eliminated by an applicable income tax treaty.
ESTATE TAXES
If you are an individual non-U.S. holder, the exchange note will not be
subject to U.S. estate tax when you die. However, this rule only applies if, at
the time of your death, payments on the exchange note would not have been
connected to a trade or business that you were conducting in the U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. rules concerning information reporting and backup withholding are
described above. You automatically avoid these requirements when you provide the
tax certifications needed to avoid withholding tax on interest, as described
above (unless we know, or an intermediate entity knows, that the certification
is false). See "Withholding Taxes" above.
Similarly, if you dispose of an exchange note through a broker:
- You must provide the broker appropriate certification of your non-U.S.
status to avoid information reporting and backup withholding.
- If you do not provide such certification, and you use the U.S. office of a
broker, you may be subject to information reporting and backup
withholding.
- If you do not provide such certification, and you use the non-U.S. office
of a broker, you will not be subject to backup withholding. However, you
may be subject to information reporting depending on whether the broker
has certain connections to the U.S.
You should consult your tax advisor about the tax rules concerning
information reporting requirements and backup withholding.
THE ABOVE SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF EXCHANGE NOTES OR
INITIAL NOTES IN LIGHT OF THAT HOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX
SITUATION. HOLDERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND THE OWNERSHIP OF THE
INITIAL NOTES OR THE EXCHANGE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT REVISIONS OF THESE TAX
LAWS.
132
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer in exchange for initial notes acquired by such
broker-dealer as a result of market making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and,
therefore, must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales, offers to resell or other transfers of the
exchange notes received by it in connection with the exchange offer.
Accordingly, each such broker-dealer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such exchange notes. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for initial notes where such
initial notes were acquired as a result of market-making activities or other
trading activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
133
<PAGE>
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, has passed
upon specific legal matters, including specific tax matters, with respect to the
notes.
EXPERTS
The consolidated financial statements and schedule of Anteon Corporation and
subsidiaries (Successor) as of December 31, 1998 and 1997, and for the years
ended December 31, 1998 and 1997, and for the period from April 1, 1996 to
December 31, 1996, and the financial statements and schedule of Ogden
Professional Services Corporation (Predecessor) for the period from January 1,
1996 to March 31, 1996, have been included herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The audited consolidated financial statements of Techmatics, Inc. as of June
30, 1997 included in this registration statement have been audited by Grant
Thornton LLP, independent certified public accountants, to the extent and for
the period indicated in their report thereon. Such consolidated financial
statements have been included in reliance upon the report of Grant Thornton LLP.
The audited consolidated financial statements of Techmatics, Inc. as of and
for the years ended June 30, 1996 and 1995 included in this registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
The consolidated financial statements of Analysis & Technology, Inc. and
subsidiaries as of March 31, 1999 and 1998, and for each of the years in the
three-year period ended March 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Until June 23, 1999, A&T was subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, filed reports, proxy statements and other information with
the Commission. We are not currently subject to the informational requirements
of the Exchange Act. Under the indenture relating to the Notes, we have agreed
to file (subject to acceptance) annual, quarterly and special reports and other
information with the Commission. You may read and copy any reports or other
information filed by us or A&T at the Commission's public reference room at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may
call the Commission at 1-800-SEC-0330 for further information contained in the
public reference room. The filings of Anteon and A&T with the Commission will
also be available to the public from commercial document retrieval services and
at the Commission's Web site at "http://www.sec.gov."
The reports, proxy statements and other information concerning A&T through
June 23, 1999 also can be inspected and copied at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006, which supervises the Nasdaq National Market on which A&T's common stock
is traded.
In addition, you may request a copy of any of these filings, at no cost, by
writing or telephoning us at the following address or telephone number:
Anteon Corporation
3211 Jermantown Road, Suite 700
Fairfax, Virginia 22030-2801
(703) 246-0200
Attention: General Counsel
134
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GLOSSARY OF TERMS
BACKLOG--Backlog represents orders under prime contracts with the Federal
government and subcontracts under Federal government prime contracts. Contract
backlog is based on management's estimate of future revenues to be derived from
existing contracts. There are no assurances that all of such backlog will be
recognized as revenue. Funded backlog consists of the aggregate dollar portion
of our contracts for which funding has been contractually authorized by the
government and earmarked for expenditure under such contracts.
CAS--Federal law requires certain government contractors and subcontractors
to comply with prescribed Cost Accounting Standards and to disclose in writing
and follow consistently their cost accounting practices. The DCAA uses the CAS
when auditing costs incurred by contractors in the performance of government
contracts.
C(4)I--Command, control, computers, communications and intelligence systems.
C(4)ISR--Command, control, computers, communications, intelligence,
surveillance and reconnaissance services.
CMOS--The Cargo Movement Operations System is a logistics system to automate
the tracking of all equipment and cargo movement operations for the Air Force.
This system is one of the largest open systems within the Department of Defense,
and the first standard Air Force client/server application to be installed.
COTS--Commercial off-the-shelf hardware and software products which are,
unlike customized systems, more open, modular and scaleable, less costly and in
some instances better suited to meet the needs of the Federal government.
DCAA--The Defense Contract Audit Agency performs all contract auditing for
the Department of Defense and provides financial and accounting advice to
government contracting officers who execute and administer government contracts.
The DCAA is involved in virtually every phase of the procurement process, from
the pre-award survey of contractor capability to the audit of final costs
claimed on completion of cost-reimbursement contracts. The federal government
has the right to audit a company for three years after the final payment for
compliance with contract terms.
FAR--The Federal Acquisition Regulations, which regulate almost all aspects
governing the formation, administration and performance of U.S. Federal
government contracts.
FEMA--The Federal Emergency Management Agency works in coordination with
state and local government to provide a national response to emergencies (I.E.,
a tornado, hurricane, earthquake or fire). FEMA responds to emergencies and, if
required, allocates Federal funds to help repair or replace property damage or
assist victims.
GSA--The General Services Administration acts as a program administrator
and, in order for a company to provide services under a GSA contract, the
company must be pre-qualified and selected by the GSA.
GSA ADVANTAGE!--GSA ADVANTAGE! is an internet-based electronic ordering
system used by government purchasing officials to buy goods and services from
GSA Schedules.
GSA SCHEDULES--The GSA awards indefinite quantity fixed price contracts to
contractors for stated periods of time, through which individual agencies may
place orders, receive shipments from and make payments directly to contractors.
The contracts are awarded under either the sealed-bid method or the negotiated
method of procurement and are placed on "lists," or schedules, according to the
product/ service type. These schedules identify the supplies and services
available to authorized government agencies by contract and include the names,
addresses, and phone numbers of the GSA Schedule
135
<PAGE>
contractors. The Automated Data Processing schedule provides for the procurement
of mainframe and minicomputers, peripherals, software, supplies, and recently
services. Contractors authorized to participate in the GSA Schedule program are
eligible to market products and services to a broad range of Federal government
customers.
IDIQ--Indefinite Delivery, Indefinite Quantity type contracts are generally
contracts for which the exact times and/or quantities of future deliveries are
not known at the time of contract award. Apart from a small minimum purchase
obligation by the government, an IDIQ contract provides no firm commitment of
work to be ordered by the government.
ITMRA--The Information Technology Management Reform Act of 1996. This
statute changed the Federal government's process of procuring information
technology by (i) placing increased attention on the cost effectiveness of
information technology and return on investment and performance and (ii) making
individual agencies accountable and responsible of oversight for information
technology budgets.
LOCE--The Linked Operations/Intelligence Centers Europe Program is a program
which provides a common view of intelligence derived from multiple sources for
the United States, NATO and UN peacekeeping forces in Europe. Near-real time
intelligence is available through such technology as imagery, shared early
warning systems, and interfaces with other U.S. and NATO systems.
NEMIS--The National Emergency Management Information System, developed by
Anteon for FEMA, is an enterprise-wide management information system that
enables the White House to effectively monitor and mobilize multiple agencies
and financial resources in response to national emergencies.
NUWC--Naval Undersea Warfare Center.
RECOMPETE--A recompete is a competitive government procurement for products
and/or services for which one or more competing contractors are or were
incumbent contractor(s) under an expiring or expired contract that required
services substantially similar to those which are the subject of the new
procurement.
RFP--A Request for Proposal is a detailed document used in the procurement
process by government agencies to solicit offers from interested contractors.
The RFP typically contains a description of the scope of work to be performed by
(or that may be ordered from) the contractor to be awarded the contract and sets
forth the terms and conditions that will form part of the resulting contract.
The RFP includes a description of the evaluation criteria to be used by the
procuring agency, usually focused on price, past performance and
technical/management plan. The government may unilaterally accept offers made by
contractors pursuant to an RFP without further negotiations.
TASK ORDER--is a contract order issued by a government agency under an
umbrella contract vehicle such as an IDIQ contract. The task order is separately
priced and contains a description of services to be performed and a defined
period of performance.
TC-AIMS--The Transportation Coordination Automated Information Movement
Systems contract, the purpose of which is to reduce the number of duplicative
transportation systems within the armed forces. The TC-AIMS system will be based
on the CMOS system.
136
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ANTEON CORPORATION
Unaudited Condensed Consolidated Balance Sheet as of June 30, 1999......................................... F-3
Unaudited Condensed Consolidated Statements of Income for the six months ended June 30, 1999 and 1998...... F-4
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and
1998..................................................................................................... F-5
Notes to Unaudited Condensed Consolidated Financial Statements............................................. F-6
Report of KPMG LLP, Independent Auditors................................................................... F-11
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-12
Consolidated Statements of Income for the successor years ended December 31, 1998 and 1997, the successor
period April 1, 1996 to December 31, 1996 and the predecessor period January 1, 1996 to March 31, 1996... F-13
Consolidated Statements of Stockholders' Equity for the successor years ended December 31, 1998 and 1997,
the successor period April 1, 1996 to December 31, 1996 and the predecessor period January 1, 1996 to
March 31, 1996........................................................................................... F-14
Consolidated Statements of Cash Flows for the successor years ended December 31, 1998 and 1997, the
successor period April 1, 1996 to December 31, 1996 and the predecessor period January 1, 1996 to March
31, 1996................................................................................................. F-15
Notes to Consolidated Financial Statements................................................................. F-17
TECHMATICS, INC.
Unaudited Consolidated Balance Sheet as of March 31, 1998.................................................. F-37
Unaudited Consolidated Statements of Earnings for the nine months ended March 31, 1998
and 1997................................................................................................. F-38
Unaudited Consolidated Statements of Cash Flows for the nine months ended
March 31, 1998 and 1997.................................................................................. F-39
Notes to Unaudited Consolidated Financial Statements....................................................... F-40
Report of Grant Thornton LLP, Independent Auditors......................................................... F-41
Consolidated Balance Sheet as of June 30, 1997............................................................. F-42
Consolidated Statement of Earnings for the year ended June 30, 1997........................................ F-43
Consolidated Statement of Changes in Stockholders' Equity for the year ended June 30, 1997................. F-44
Consolidated Statement of Cash Flows for the year ended June 30, 1997...................................... F-45
Notes to Consolidated Financial Statements................................................................. F-46
Report of Arthur Andersen LLP, Independent Auditors........................................................ F-53
Consolidated Balance Sheets as of June 30, 1996 and 1995................................................... F-54
Consolidated Statements of Income for the years ended June 30, 1996 and 1995............................... F-55
Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 1996 and 1995...... F-56
Consolidated Statements of Cash Flows for the years ended June 30, 1996 and 1995........................... F-57
Notes to Consolidated Financial Statements................................................................. F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
ANALYSIS & TECHNOLOGY, INC.
Report of KPMG LLP, Independent Auditors............................................. F-64
Consolidated Balance Sheets as of March 31, 1999 and 1998............................ F-65
Consolidated Statements of Earnings for each of the the years in the three-year
period ended March 31, 1999........................................................ F-66
Consolidated Statements of Shareholders' Equity for each of the years in the
three-year period ended March 31, 1999............................................. F-67
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended March 31, 1999............................................................... F-68
Notes to Consolidated Financial Statements........................................... F-69
</TABLE>
F-2
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents.................. $ 2,764
Accounts receivable, net................... 98,942
Prepaid expenses and other current
assets................................... 4,753
--------
Total current assets................... 106,459
--------
Due from parent.............................. 7,017
Property and equipment, net of accumulated
depreciation and amortization.............. 19,286
Goodwill, net of accumulated amortization.... 132,532
Investments.................................. 10,533
Other assets, net............................ 11,280
--------
Total assets........................... $ 287,107
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 17,525
Accrued expenses........................... 33,468
Notes payable.............................. 8,998
Other current liabilities, net............. 2,866
--------
Total current liabilities.............. 62,857
Revolving Credit Facility.................... 13,000
Term Loan Facility........................... 60,000
Senior subordinated notes payable............ 100,000
Mortgage note payable........................ 1,726
Noncurrent deferred tax liabilities, net..... 1,379
Other long-term liabilities.................. 206
--------
Total Liabilities...................... 239,168
--------
Minority interest in subsidiary.............. 53
--------
Stockholders' equity
Common stock, $0.05 par value, 4,415,460
shares authorized, 3,557,672 shares
issued and outstanding................... 178
Additional paid-in-capital................. 40,751
Accumulated other comprehensive income..... 1,972
Retained earnings.......................... 4,985
--------
Total stockholders' equity............. 47,886
--------
Commitments and contingencies................
Total liabilities and stockholders'
equity............................... $ 287,107
--------
--------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues............................................................................... $ 145,609 $ 108,196
Costs of revenues...................................................................... 128,576 96,139
---------- ----------
Gross profit..................................................................... 17,033 12,057
---------- ----------
Operating expenses:
General and administrative expenses.................................................. 8,907 6,203
Amortization of noncompete agreements................................................ 454 76
Goodwill amortization................................................................ 1,024 751
Cost of acquisitions................................................................. -- 18
---------- ----------
Total operating expenses......................................................... 10,385 7,048
---------- ----------
Operating income................................................................. 6,648 5,009
---------- ----------
Interest expense, net of interest income of $812 and $82............................... 5,500 1,736
Minority interest in earnings of subsidiary............................................ 17 14
---------- ----------
Income before provision for income taxes and extraordinary item........................ 1,131 3,259
Provision for income taxes............................................................. 597 1,310
---------- ----------
Net income before extraordinary item............................................. 534 1,949
---------- ----------
Extraordinary item--loss on early extinguishment of debt, net of
income taxes of $309................................................................. 463 --
---------- ----------
Net income............................................................................. $ 71 $ 1,949
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Cash flows from operating activities.......................................................... $ 71 $ 1,949
Net income..................................................................................
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Extraordinary loss........................................................................ 772 --
Depreciation and amortization of property and equipment................................... 996 501
Goodwill amortization..................................................................... 1,024 751
Amortization of noncompete agreements..................................................... 454 76
Amortization of deferred financing and contract costs..................................... 102 683
Deferred income taxes..................................................................... 38 151
Minority interest in earnings (losses) of subsidiary...................................... 17 --
Changes in assets and liabilities, net of acquired assets and liabilities................. 2,203 (13,537)
--------- ---------
Net cash provided by (used in) operating activities..................................... 9,602 (9,426)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment.......................................................... (1,255) (1,164)
Acquisition of A&T, net of cash acquired.................................................... (115,446) --
Acquisition of Techmatics, net of cash acquired............................................. -- (28,558)
Purchases of investments.................................................................... (1,939) --
Other, net.................................................................................. (30) 116
--------- ---------
Net cash used in investing activities................................................. (118,670) (29,606)
--------- ---------
Cash flows from financing activities:
Proceeds from bank notes payable............................................................ 212,000 158,104
Principal payments on bank notes payable.................................................... (209,400) (117,100)
Proceeds from issuance of common stock...................................................... 22,536 18
Issuance of senior subordinated notes payable............................................... 100,000 --
Principal payments on notes payable......................................................... (4,925) --
Deferred financing costs.................................................................... (8,535) (987)
--------- ---------
Net cash provided by financing activities............................................. 111,676 40,035
--------- ---------
Net increase in cash and cash equivalents............................................. 2,608 1,003
Cash and cash equivalents, beginning of period................................................ 156 652
--------- ---------
Cash and cash equivalents, end of period...................................................... $ 2,764 $ 1,655
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid................................................................................. $ 4,856 $ 2,075
Income taxes paid............................................................................. 25 230
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-5
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(1) BASIS OF PRESENTATION
The unaudited interim financial information as of June 30, 1999, and for the
six months ended June 30, 1999 and 1998, has been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation of such information. The operating results for the six months ended
June 30, 1999 may not be indicative of the results of operations for the year
ending 1999 or any future period. This financial information should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto.
(2) SENIOR SUBORDINATED NOTES OFFERING AND RELATED TRANSACTIONS
On May 11, 1999, the Company completed an offering of $100 million of its
12% Senior Subordinated Notes due 2009 (the "Notes"). The Notes are unsecured
and are guaranteed by all of the Company's current and future domestic
subsidiaries. The Notes require semi-annual interest payments beginning on
November 15, 1999 through maturity on May 15, 2009. The Notes may be redeemed at
the option of the Company after May 15, 2004 upon the payment of certain
redemption premiums, although up to 25% of the Notes can be redeemed prior to
May 15, 2002 with the proceeds of certain equity offerings and upon the payment
of certain redemption premiums. The Notes contain various restrictive covenants,
including limitations on the incurrence of additional indebtedness, restrictions
and limitations on dividends paid to the Company's parent, Azimuth Technologies,
Inc., and restrictions and limitations on the sales of certain assets, among
others. The Notes also require the maintanence of certain ratios.
Concurrent with the offering of the Notes, the Company's parent, Azimuth
Technologies, Inc., invested an additional $22.5 million in the Company's common
stock (the "Equity Contribution").
During June 1999, the Company obtained a new bank credit facility (the "New
Credit Facility") with a syndicate of banks, which includes a revolving line of
credit (the "Revolving Credit Facility") and a term loan facility (the "Term
Loan Facility"). The Revolving Credit Facility has maximum borrowings of up to
$120 million, as determined based on a portion of eligible accounts receivable,
and bears interest at varying rates based on LIBOR plus a margin determined
using Anteon's ratio of net debt to EBITDA (as defined in the New Credit
Facility) and matures on June 23, 2005. As of June 30, 1999, the outstanding
balance on the Revolving Credit Facility was $13.0 million. The Term Loan
Facility consists of a term loan of $60 million bearing interest at varying
rates based on LIBOR plus a margin determined using Anteon's ratio of net debt
to EBITDA (as defined in the New Credit Facility). Principal payments on the
Term Loan Facility commence on a quarterly basis after June 23, 2001, with $15
million due at maturity on June 23, 2005. The New Credit Facility is secured by
substantially all of the tangible and intangible assets of Anteon and the
Guarantor Subsidiaries (see note 5).
The proceeds from the Notes, the Equity Contribution, and the New Credit
Facility were used, along with other available cash to acquire all of the
outstanding stock of Analysis & Technology, Inc. and repay all outstanding
amounts on the Company's previous bank line of credit. Deferred financing fees
of $772 associated with the previous bank line of credit were written off during
the six months ended June 30, 1999 and have been recognized as an extraordinary
item.
F-6
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(3) ACQUISITION OF ANALYSIS & TECHNOLOGY, INC.
On June 23, 1999, the Company acquired all of the outstanding stock of
Analysis & Technology, Inc. ("A&T"), a provider of system and engineering
technologies, technology-based training systems, and information technologies to
the U.S. Government and commercial industry. The acquisition was accounted for
using the purchase method whereby the net tangible and identifiable intangible
assets acquired and liabilities assumed were recognized at their estimated fair
market values at the date of combination. These estimates were based on
preliminary appraisals and other studies that will be completed during the
remainder of 1999. Goodwill resulting from the combination is being amortized on
a straight-line basis over thirty years.
The total purchase price paid, including transaction costs, of approximately
$115.4 million, was preliminarily allocated to the assets and liabilities
acquired as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable............................................... $ 30,910
Prepaid expenses and other current assets......................... 951
Property and equipment............................................ 14,129
Other assets...................................................... 1,606
Goodwill.......................................................... 83,490
Accounts payable and accrued expenses............................. (13,499)
Deferred tax liabilities, net..................................... (64)
Mortgage note payable............................................. (2,077)
---------
Total consideration........................................... $ 115,446
---------
---------
</TABLE>
Transaction costs of approximately $4.4 million were incurred in connection
with the acquisition, including approximately $1.1 million to Caxton-Iseman
Capital, Inc., the majority shareholder of the Company's parent, Azimuth
Technologies, Inc.
The following unaudited pro forma summary presents consolidated information
as if the acquisition of A&T had occurred as of January 1, 1998. The pro forma
summary is provided for informational purposes only and is based on historical
information that does not necessarily reflect actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
combined entity:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Total revenues $ 235,706 $ 193,093
Total expenses.......................................................... (236,711) (193,185)
--------- ---------
Net loss before extraordinary items................................... (1,005) (92)
--------- ---------
Net loss................................................................ (1,005) (555)
--------- ---------
--------- ---------
</TABLE>
(4) COMPREHENSIVE INCOME
Comprehensive income for the six months ended June 30, 1999 and 1998 was
$1,840,000 and $1,949,000, respectively.
F-7
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(5) ARRANGEMENT WITH CAXTON-ISEMAN CAPITAL, INC.
Effective June 1, 1999, the Company entered into an arrangement with
Caxton-Iseman Capital, Inc., the majority shareholder of the Company's parent,
Azimuth Technologies, Inc., whereby the Company is required to pay annual
management fees to Caxton-Iseman Capital, Inc. Prior to the completion of the
acquisition of A&T, the annual management fee was $500,000 and covered the
period beginning January 1, 1999. For periods subsequent to the acquisition of
A&T, the annual management fee is $1 million. For the six months ended June 30,
1999, the Company recognized $250,000 of management fee expense under the
arrangement. Also under the arrangement, the Company paid Caxton-Iseman Capital,
Inc. a transaction fee of approximately $1.1 million in connection with the
acquisition of A&T.
(6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION
Under the terms of the Notes, the Company's wholly-owned domestic
subsidiaries (the "Subsidiary Guarantors") are guarantors of the Notes. Such
guarantees are full, unconditional and joint and several. Separate unaudited
condensed financial statements of the Subsidiary Guarantors are not presented
because the Company's management has determined that they would not be material
to investors. The following supplemental financial information sets forth, on a
combined basis, condensed balance sheets, statements of operations and
statements of cash flows information for the Subsidiary Guarantors, the
Company's non-guarantor subsidiaries and for the Company.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
--------------------------------------------------------------------
CONSOLIDATED
ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON
CONDENSED CONSOLIDATED BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash....................................... $ 2,572 $ (470) $ 662 $ -- $ 2,764
Receivables................................ 39,920 58,760 262 -- 98,942
Other current assets....................... 2,909 1,680 164 -- 4,753
Property and equipment, net................ 2,316 16,909 61 -- 19,286
Due from parent............................ 7,017 -- -- -- 7,017
Investment in and advances to
subsidiaries............................. 48,669 225 (225) (48,669) --
Goodwill, net.............................. 132,532 -- -- -- 132,532
Investments................................ 10,533 -- -- -- 10,533
Other long-term assets..................... 8,168 3,104 8 -- 11,280
----------- ----------- ------ ----------- ------------
Total assets........................... $ 254,636 $ 80,208 $ 932 $ (48,669) $ 287,107
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
Indebtedness............................... 181,647 2,077 -- -- 183,724
Accounts payable........................... 13,539 3,691 295 -- 17,525
Accrued expenses........................... 15,059 18,157 252 -- 33,468
Other current liabilities.................. 315 2,324 227 -- 2,866
Other long-term liabilities................ 1,047 463 75 -- 1,585
----------- ----------- ------ ----------- ------------
Total liabilities...................... 211,607 26,712 849 -- 239,168
Minority interest in subsidiary............ -- -- 53 -- 53
Total stockholders' equity................. 43,029 53,496 30 (48,669) 47,886
----------- ----------- ------ ----------- ------------
Total liabilities and stockholders'
equity................................... $ 254,636 $ 80,208 $ 932 $ (48,669) $ 287,107
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-8
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 94,117 $ 50,020 $ 1,775 $ (303) $ 145,609
Cost of revenues........................... 85,518 41,717 1,644 (303) 128,576
----------- ----------- ------ ----------- ------------
Gross profit............................... 8,599 8,303 131 -- 17,033
Total operating expenses................... 5,513 4,798 74 -- 10,385
----------- ----------- ------ ----------- ------------
Operating income........................... 3,086 3,505 57 -- 6,648
Interest expense (income), net............. 5,536 (46) 10 -- 5,500
Minority interest.......................... -- -- 17 -- 17
----------- ----------- ------ ----------- ------------
Income (loss) before provision for income
taxes and extraordinary item............. (2,450) 3,551 30 -- 1,131
Provision (benefit) for income taxes....... (574) 1,141 30 -- 597
----------- ----------- ------ ----------- ------------
Net income before extraordinary item....... (1,876) 2,410 -- -- 534
Extraordinary loss, net of tax............. 463 -- -- -- 463
----------- ----------- ------ ----------- ------------
Net income (loss).......................... $ (2,339) $ 2,410 $ -- $ -- $ 71
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-9
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------
CONSOLIDATED
ANTEON GUARANTOR NON- GUARANTOR ANTEON
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net income (loss).......................................... $ (2,327) $ 2,382 $ 16 $ 71
Adjustments to reconcile change in net income (loss) to net
cash provided by operations:
Extraordinary loss..................................... 772 -- -- 772
Depreciation and amortization.......................... 407 576 13 996
Goodwill amortization.................................. 1,024 -- -- 1,024
Amortization of noncompetes............................ 454 -- -- 454
Amortization of deferred financing and contract costs.. 102 -- -- 102
Deferred income taxes.................................. -- -- 38 --
Minority interest in earnings of subsidiary............ -- 17 -- 17
Changes in assets and liabilities, net of acquired
assets and liabilities............................... 8,641 (2,918) 405 6,128
----------- ----------- ------ ------------
Net cash provided by operating activities............ $ 9,073 $ 57 $ 472 $ 9,602
----------- ----------- ------ ------------
Cash flows from investing activities:
Purchases of property and equipment.................... $ (926) $ (294) $ (35) $ (1,255)
Acquisition of A&T, net of cash acquired............... (115,446) -- -- (115,446)
Purchases of investments............................... (1,930) -- (9) (1,939)
Other, net............................................. (30) -- -- (30)
----------- ----------- ------ ------------
Net cash used in investing activities................ $(118,332) $ (294) $ (44) $ (118,670)
----------- ----------- ------ ------------
Cash flow from financing activities
Proceeds from bank notes payable....................... $ 212,000 $ -- $ -- (212,000)
Principal payments on bank notes payable............... (209,400) -- -- (209,400)
Issuance of senior subordinated notes payable.......... 100,000 -- -- 100,000
Principal payments on notes payable.................... (4,925) -- -- (4,925)
Proceeds from issuance of common stock................. 22,536 -- -- 22,536
Deferred financing costs............................... (8,535) -- -- (8,535)
----------- ----------- ------ ------------
Net cash provided by financing activities............ $ 111,676 $ -- $ -- $ 111,676
----------- ----------- ------ ------------
Net increase (decrease) in cash and cash equivalents....... 2,417 (237) 428 2,608
Cash and cash equivalents beginning of year................ 155 (234) 235 156
----------- ----------- ------ ------------
Cash and cash equivalents end of year...................... $ 2,572 $ (471) $ 663 $ 2,764
----------- ----------- ------ ------------
----------- ----------- ------ ------------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................................................... $ 92,836 $ 14,102 $ 1,258 $ 108,196
Cost of revenues........................................... 83,485 11,589 1,065 96,139
----------- ----------- ------ ------------
Gross profit............................................... 9,351 2,513 193 12,057
Total operating expenses................................... 5,057 1,883 108 7,048
----------- ----------- ------ ------------
Operating income (loss).................................... 4,294 630 85 5,009
Interest expense (income) net.............................. 1,770 (26) (8) 1,736
Minority interest.......................................... -- -- 14 14
----------- ----------- ------ ------------
Income before provision for income taxes................... 2,524 656 79 3,259
Provision for income taxes................................. 1,037 252 21 1,310
----------- ----------- ------ ------------
Net income................................................. $ 1,487 $ 404 $ 58 $ 1,949
----------- ----------- ------ ------------
----------- ----------- ------ ------------
</TABLE>
F-10
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------
CONSOLIDATED
ANTEON GUARANTOR NON- GUARANTOR ANTEON
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net income................................................. $ 1,471 406 72 1,949
Adjustments to reconcile change in net income to net cash
provided by (used in) operations:
Depreciation and amortization.......................... 386 69 46 501
Goodwill amortization.................................. 751 -- -- 751
Amortization of noncompete agreements.................. 76 -- -- 76
Amortization of deferred financing and contract costs.. 683 -- -- 683
Deferred income taxes.................................. -- 137 14 151
Changes in assets and liabilities, net of acquired assets
and liabilities.......................................... (13,993) (151) 607 (13,537)
Net cash provided by (used in) operating activities........ $ (10,626) $ 461 $ 739 $ (9,426)
----------- ----- ----- ------------
Cash flows from investing activities:
Purchases of property and equipment.................... (961) (84) (119) (1,164)
Acquisition of Techmatics, net of cash................. (28,558) -- -- (28,558)
Other.................................................. 116 -- -- 116
----------- ----- ----- ------------
Net cash used in investing activities...................... $ (29,403) $ (84) $ (119) $ (29,606)
Cash flow from financing activities:
Proceeds from bank notes payable....................... $ 158,104 $ -- $ -- $ 158,104
Principal payments on bank notes payable............... (117,100) -- -- (117,100)
Proceeds from issuance of common stock................. 18 -- -- 18
Deferred financing fees................................ (987) -- -- (987)
----------- ----- ----- ------------
Net cash provided by financing activities.................. $ 40,035 $ -- $ -- $ 40,035
----------- ----- ----- ------------
Net increase in cash and cash equivalents.................. 6 377 620 1,003
Cash and cash equivalents beginning of year................ 830 (195) 17 652
----------- ----- ----- ------------
Cash and cash equivalents end of year...................... $ 836 $ 182 $ 637 $ 1,655
----------- ----- ----- ------------
----------- ----- ----- ------------
</TABLE>
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Anteon Corporation and subsidiaries:
We have audited the accompanying consolidated balance sheets of Anteon
Corporation (a majority-owned subsidiary of Azimuth Technologies, Inc.) and
subsidiaries (Successor) as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1998 and 1997 and for the period from April 1, 1996 to
December 31, 1996 (Successor periods), and the statements of income,
stockholder's equity and cash flows of Ogden Professional Services Corporation
(an indirect wholly owned subsidiary of Ogden Corporation) (Predecessor) for the
period from January 1, 1996 to March 31, 1996 (Predecessor period). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned Successor consolidated financial
statements present fairly, in all material respects, the financial position of
Anteon Corporation and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for the Successor periods, in
conformity with generally accepted accounting principles. Further, in our
opinion, the aforementioned Predecessor financial statements present fairly, in
all material respects, the results of operations and cash flows of Ogden
Professional Services Corporation for the Predecessor period, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
April 1, 1996, Azimuth Technologies, Inc. acquired all of the outstanding stock
of Ogden Professional Services Corporation in a business combination accounted
for as a purchase. As a result of the acquisition, the financial information for
the period after the acquisition is presented on a different cost basis than
that for the period before the acquisition and, therefore, is not comparable.
KPMG LLP
McLean, Virginia
February 19, 1999, except as to note 13,
which is as of April 14, 1999
F-12
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 156 652
Accounts receivable, net.................................................................. 68,053 29,405
Income tax receivable..................................................................... 2,138 --
Inventory, net............................................................................ -- 2,759
Prepaid expenses and other current assets................................................. 3,209 1,818
Deferred tax assets, net.................................................................. -- 1,110
---------- ---------
Total current assets.................................................................. 73,556 35,744
Due from parent............................................................................. 6,625 1,045
Property and equipment, at cost, net of accumulated depreciation and amortization of $2,940
and $1,562................................................................................ 4,537 1,585
Goodwill, net of accumulated amortization of $2,909 and $1,088.............................. 50,036 30,034
Investments................................................................................. 5,973 --
Other assets, net........................................................................... 2,441 164
---------- ---------
Total assets.......................................................................... $ 143,168 68,572
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 12,582 12,630
Accrued expenses.......................................................................... 23,338 9,347
Bank notes payable, current portion....................................................... -- 2,000
Subordinated notes payable, current portion............................................... 967 --
Deferred tax liabilities, net............................................................. 1,542 --
Other current liabilities................................................................. 966 --
---------- ---------
Total current liabilities............................................................. 39,395 23,977
Bank notes payable, less current portion.................................................... 70,400 22,100
Subordinated notes payable, less current portion............................................ 8,335 --
Noncurrent deferred tax liabilities, net.................................................... 311 462
Other long-term liabilities................................................................. 985 1,205
---------- ---------
Total liabilities..................................................................... 119,426 47,744
---------- ---------
Minority interest in subsidiary............................................................. 37 12
---------- ---------
Stockholders' equity:
Common stock, $0.05 par value, 3,415,460 shares authorized, 2,975,009 and 2,973,269 shares
issued and outstanding as of December 31, 1998 and 1997, respectively................... 149 149
Additional paid-in capital................................................................ 18,243 18,221
Accumulated other comprehensive income.................................................... 399 --
Retained earnings......................................................................... 4,914 2,446
---------- ---------
Total stockholders' equity............................................................ 23,705 20,816
---------- ---------
Commitments and contingencies
Total liabilities and stockholders' equity............................................ $ 143,168 68,572
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM
APRIL 1, 1996
TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
PERIOD FROM PREDECESSOR
APRIL 1, PERIOD FROM
SUCCESSOR SUCCESSOR 1996 JANUARY 1,
YEAR ENDED YEAR ENDED TO 1996
DECEMBER DECEMBER DECEMBER TO
31, 31, 31, MARCH 31,
1998 1997 1996 1996
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues................................... $ 249,776 $ 176,292 $ 109,780 $ 32,046
Costs of revenues.......................... 221,588 159,539 100,426 29,218
----------- ----------- ----------- -------------
Gross profit......................... 28,188 16,753 9,354 2,828
----------- ----------- ----------- -------------
Operating expenses:
General and administrative expenses...... 15,286 8,061 4,616 2,071
Amortization of noncompete agreements.... 530 2,286 1,714 --
Goodwill amortization.................... 1,814 742 346 --
Costs of acquisitions.................... 115 584 -- --
----------- ----------- ----------- -------------
Total operating expenses............. 17,745 11,673 6,676 2,071
----------- ----------- ----------- -------------
Operating income..................... 10,443 5,080 2,678 757
Interest expense, net of interest income of
$136, $48, $31,and $0.................... 5,597 2,365 1,455 --
Minority interest in earnings of
subsidiary............................... 25 13 -- --
----------- ----------- ----------- -------------
Income before provision for income taxes... 4,821 2,702 1,223 757
Provision for income taxes................. 2,353 1,063 416 303
----------- ----------- ----------- -------------
Net income........................... $ 2,468 $ 1,639 $ 807 $ 454
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM
APRIL 1, 1996
TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID-IN COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL INCOME EARNINGS TOTAL
---------- ----------- ----------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
PREDECESSOR
Balance, January 1, 1996.......................... 2,973,269 $ 149 $ 7,726 -- $ 21,533 $ 29,408
Net income........................................ -- -- -- -- 454 454
---------- ----- ----------- ----- --------- ---------
Balance, March 31,1996............................ 2,973,269 $ 149 $ 7,726 -- $ 21,987 $ 29,862
---------- ----- ----------- ----- --------- ---------
---------- ----- ----------- ----- --------- ---------
SUCCESSOR
Initial capitalization by Azimuth Technologies,
Inc............................................. 2,973,269 $ 149 $ 18,221 $ -- $ -- $ 18,370
Net income........................................ -- -- -- -- 807 807
---------- ----- ----------- ----- --------- ---------
Balance, December 31, 1996........................ 2,973,269 149 18,221 -- 807 19,177
Net income........................................ -- -- -- -- 1,639 1,639
---------- ----- ----------- ----- --------- ---------
Balance, December 31, 1997........................ 2,973,269 149 18,221 -- 2,446 20,816
Exercise of stock options......................... 1,740 -- 22 -- -- 22
Unrealized gains on investments................... -- -- -- 392 -- 392
Foreign currency translation...................... -- -- -- 7 -- 7
Net income........................................ -- -- -- -- 2,468 2,468
---------- ----- ----------- ----- --------- ---------
Comprehensive income.............................. -- -- -- 399 2,468 2,867
---------- ----- ----------- ----- --------- ---------
Balance, December 31, 1998........................ 2,975,009 $ 149 $ 18,243 $ 399 $ 4,914 $ 23,705
---------- ----- ----------- ----- --------- ---------
---------- ----- ----------- ----- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM
APRIL 1, 1996
TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
PERIOD FROM PREDECESSOR
SUCCESSOR SUCCESSOR APRIL 1, 1996 PERIOD FROM
YEAR ENDED YEAR ENDED TO JANUARY 1, 1996
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO
1998 1997 1996 MARCH 31, 1996
------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 2,468 $ 1,639 $ 807 $ 454
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization of property and
equipment..................................... 1,837 895 667 229
Goodwill amortization........................... 1,814 742 346 --
Amortization of noncompete agreements........... 530 2,286 1,714 --
Amortization of deferred financing and contract
costs......................................... 1,420 1,209 468 157
Inventory obsolescence reserve.................. 500 -- -- --
Loss on disposal of property and equipment...... -- 21 -- --
Deferred income taxes........................... 2,501 (943) 416 --
Minority interest in earnings (losses) of
subsidiary.................................... 25 (13) -- --
Changes in assets and liabilities, net of
acquired liabilities:
Decrease (increase) in accounts receivables... (15,559) 10,086 2,051 (1,130)
Increase in income tax receivable............. (2,138) -- -- --
Decrease (increase) in inventory.............. 2,259 (2,759) -- --
Increase in due from parent................... (730) (531) (514) --
Increase in prepaid expenses and other current
assets...................................... (2,088) (518) (318) (671)
(Increase) decrease in other assets........... 556 414 732 --
(Decrease) increase in accounts payable and
accrued expenses............................ (2,230) 1,566 221 3,024
Increase in other liabilities................. 495 -- 929 161
------------ ------------- ------------- -------
Net cash provided by (used in) operating
activities................................ (8,340) 14,094 7,519 2,224
------------ ------------- ------------- -------
Cash flows from investing activities:
Purchases of property and equipment................. (2,089) (817) (376) (211)
Acquisition of the Company, net of cash acquired.... -- -- (35,808) --
Acquisition of Vector Data Systems, net of cash
acquired.......................................... -- (17,239) -- --
Acquisition of Techmatics, net of cash acquired..... (27,612) -- -- --
Purchases of investments............................ (5,574) -- -- --
Other, net.......................................... (113) -- -- --
------------ ------------- ------------- -------
Net cash used in investing activities....... (35,388) (18,056) (36,184) (211)
------------ ------------- ------------- -------
Cash flows from financing activities:
Proceeds from bank notes payable.................... 278,500 199,300 29,100 --
Initial capitalization.............................. -- -- 9,869 --
Principal payments on bank notes payable............ (232,200) (194,800) (9,500) --
Principal payments on Techmatics obligations........ (2,075) -- -- --
Proceeds from issuance of common stock.............. 22 -- -- --
Deferred financing costs............................ (1,015) -- (690) --
Transfers to Ogden, net............................. -- -- -- (1,079)
------------ ------------- ------------- -------
Net cash provided by (used in) financing
activities................................ 43,232 4,500 28,779 (1,079)
------------ ------------- ------------- -------
Net (decrease) increase in cash and cash
equivalents............................... (496) 538 114 934
Cash and cash equivalents, beginning of period........ 652 114 -- 1,785
------------ ------------- ------------- -------
Cash and cash equivalents, end of period.............. $ 156 $ 652 $ 114 $ 2,719
------------ ------------- ------------- -------
------------ ------------- ------------- -------
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 5,721 $ 1,684 $ 1,100 $ --
Income taxes paid................................... 1,784 1,154 -- --
------------ ------------- ------------- -------
------------ ------------- ------------- -------
</TABLE>
F-16
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM
APRIL 1, 1996
TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996
(IN THOUSANDS)
Supplemental disclosure of noncash investing and financing activities:
As of September 30, 1998, the Company reached a settlement on the
arbitration proceedings related to the purchase of the Company from Ogden
Professional Services Corporation (note 1). The reduction of $4.85 million
of the consideration paid for the Company was recognized as a reduction of
the Ogden debt at the Azimuth level and the goodwill from the Anteon
acquisition.
In connection with the Techmatics acquisition (note 3), the Company assumed
$10 million of subordinated notes payable discounted as of the date of
acquisition to approximately $8,880,000. In May 1998, the Company assumed $4
million of future income tax obligations of the former shareholders of
Techmatics discounted to approximately $3.762 million as of the date of
acquisition. In addition, the Company entered into two-year noncompete
agreements valued at $2.85 million with certain executives of Techmatics
discounted to approximately $2.654 million as of the date of acquisition.
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) ORGANIZATION AND BUSINESS
Anteon Corporation ("Anteon" or the "Company") was acquired by Azimuth
Technologies, Inc. ("Azimuth") (formerly CIC Technologies, Inc.) effective April
1, 1996. Azimuth acquired all of the outstanding stock of Ogden Professional
Services Corporation, a wholly owned subsidiary of Ogden Technology Services
Corporation and an indirectly wholly owned subsidiary of Ogden Corporation
(collectively, "Ogden"). Upon completion of the acquisition, Ogden Professional
Services Corporation was renamed Anteon Corporation. The consideration paid by
Azimuth to Ogden was approximately $45.2 million, consisting of approximately
$36.7 million cash and a note payable to Ogden from Azimuth for $8.5 million.
The acquisition of Anteon was accounted for using the purchase method whereby
the net tangible and identifiable intangible assets acquired and liabilities
assumed were recognized at estimated fair market value as of the date of the
combination.
The total purchase price paid, including transaction costs, of approximately
$47.1 million was allocated to the assets and liabilities acquired as follows
(in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents......................................................... $ 2,719
Accounts receivable............................................................... 38,591
Property and equipment............................................................ 1,633
Noncompete agreement.............................................................. 4,000
Other assets...................................................................... 3,230
Goodwill.......................................................................... 13,907
Accounts payable and accrued expenses............................................. (16,937)
---------
Total consideration......................................................... $ 47,143
---------
---------
</TABLE>
Subsequent to the date of the closing of the Anteon acquisition and in
accordance with the stock purchase agreement, the Company filed a demand for
arbitration against Ogden seeking refund of a portion of the purchase price. As
of September 30, 1998, the arbitration proceedings were settled and resulted in
a reduction of $4.85 million of the purchase price paid to Ogden in the 1996
acquisition of Anteon. The settlement was recognized as a reduction of the note
payable for Azimuth to Ogden and goodwill from the Anteon acquisition.
The Company provides professional information technology, systems and
software development, high technology research, and engineering services
primarily to the U.S. government and its agencies.
The Company is subject to all of the risks associated with conducting
business with the U.S. federal government, including the risk of contract
terminations at the convenience of the government, and including government
funding limitations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of and for the years ended December
31, 1998 and 1997 and for the period from April 1, 1996 to December 31, 1996
represent the Company's financial position, results of operations and cash flows
subsequent to its acquisition by Azimuth. The financial statements for the
period from January 1, 1996 to March 31, 1996 represent the results of
operations and cash flows of Ogden
F-18
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Professional Services Corporation. The financial information for the period
after the acquisition is presented on a different cost basis than that for the
period before the acquisition and, therefore, is not comparable. All material
intercompany transactions and accounts have been eliminated in consolidation.
The consolidated financial statements as of December 31, 1998 and 1997 also
include the assets and liabilities of Vector Data Systems, Inc. and its
majority-owned subsidiary, Vector Data Systems (U.K.) Limited, and Anteon's
wholly-owned subsidiaries, Anteon VDS-Korea (Korea) Limited and Vector Data
Systems Australia Pty. Ltd. (Australia), and their results of operations and
cash flows for the year ended December 31, 1998 and for the period August 29,
1997 to December 31, 1997, subsequent to its acquisition by the Company (see
note 3).
The consolidated financial statements as of December 31, 1998 also include
the assets and liabilities of Techmatics, Inc. and its results of operations and
cash flows for the period May 29, 1998 to December 31, 1998, subsequent to its
acquisition by the Company (see note 3).
(B) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments that have original maturities of three months or less.
(C) INVENTORY
Inventory consists of computer hardware and software products and is stated
at the lower of cost or market, on a first-in, first-out basis. The Company
established reserves for obsolete inventory of $500,000 and $0 as of December
31, 1998 and 1997, respectively.
(D) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, or fair value if acquired through
a purchase business combination. For financial reporting purposes, depreciation
and amortization is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer hardware and software............ 3 to 5 years
Furniture and equipment................... 5 to 7 years
shorter of estimated useful life or
Leasehold improvements.................... lease term
</TABLE>
(E) INVESTMENTS
The Company accounts for investments in debt and marketable equity
securities depending on the purpose of the investment. The Company's only
investment as of December 31, 1998 consists entirely of marketable equity
securities. Since the Company does not hold this investment principally for the
purpose of selling the investment in the near term, the Company classifies the
securities as available-for-sale. Accordingly, this investment is recognized at
fair market value and any unrealized gains (losses) are recognized as a
component of stockholders' equity. As of December 31, 1998, the aggregate fair
market value of the investments was $5,978,000, resulting in an unrealized gain
of $392,000.
F-19
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(F) DEFERRED FINANCING COSTS
Costs associated with obtaining the Company's financing arrangements have
been deferred and are amortized over the term of the financing arrangements
using a method that approximates the effective interest method.
(G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS No. 121"). This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair values of
the assets.
(H) GOODWILL
The excess of the cost over the fair value of net tangible and identifiable
intangible assets acquired in purchase business combinations (goodwill) is
amortized on a straight-line basis over periods of 20 to 30 years. The Company
evaluates the recoverability of its goodwill annually in accordance with the
provisions of SFAS No. 121.
(I) OTHER INTANGIBLE ASSETS
The Company amortizes, on a straight-line basis, the allocated cost of
noncompete agreements entered into in connection with business combinations.
(J) REVENUE RECOGNITION
The Company provides professional services under long-term contracts,
primarily with the U.S. government. Revenues for cost-reimbursement contracts
are recorded on the basis of direct and indirect costs incurred and a ratable
portion of fee. Revenues under time-and-materials contracts are recorded at the
contracted rates as the labor hours and other direct costs are incurred.
Revenues under fixed-price contracts are recognized using the
percentage-of-completion method based on costs incurred in relation to total
estimated costs. Anticipated losses on contracts are recognized as soon as they
become known. Revenues from sales of products are generally recognized upon
acceptance by the customer, which is typically within thirty days of shipment.
(K) COSTS OF ACQUISITIONS
Costs incurred on successful acquisitions are capitalized as a cost of the
acquisition, while costs incurred by the Company for unsuccessful or
discontinued acquisition opportunities are expensed as incurred.
F-20
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(L) INCOME TAXES
The Company is currently included in the consolidated income tax returns of
Azimuth. Prior to April 1, 1996, the Company was included in the consolidated
income tax returns of Ogden. However, the Company prepares its provisions for
income taxes as if it filed its income tax returns separately. The Company
calculates its income tax provision using the asset and liability method. Under
the asset and liability method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
(M) FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The balance sheets of Vector Data Systems (U.K.) Limited, Anteon VDS (Korea)
Limited and Vector Data Systems Australia Pty. Ltd. (Australia) Limited are
translated to U.S. dollars for consolidated financial statement purposes using
the current exchange rates in effect as of year end. The revenue and expense
accounts of foreign subsidiaries are converted using a weighted average exchange
rate during the period. Gains and losses resulting from such translations are
included in accumulated comprehensive income in stockholders' equity. Gains and
losses from transactions denominated in foreign currencies are included in
current period income.
(N) ACCOUNTING FOR DEFERRED CONTRACT COSTS
During 1998, the Company adopted the provisions of Statement of Position No.
98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"), which requires
costs of start-up activities, including precontract costs, to be expensed as
incurred. During 1994 and 1995, the Company capitalized certain precontract
costs associated with two of its significant contracts (Capzone/Paczone
contracts). The remaining balances of the precontract costs were written-off
during 1998 in implementing SOP 98-5. The adoption of SOP 98-5 did not have a
material impact on the Company's financial position or results of operations.
(O) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES; however, the Company discloses the pro forma
effect on net income as if the fair value based method of accounting as defined
in SFAS No. 123 had been applied.
(P) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, accounts payable and accrued
liabilities approximate their fair market values as of December 31, 1998 and
1997 due to the relatively short duration of these financial instruments. The
carrying amounts of the Company's indebtedness approximate their fair values as
of December 31, 1998 and 1997 as they bear interest rates that approximate
market.
F-21
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(Q) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(R) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform to the 1998 consolidated financial statement
presentation.
(3) ACQUISITIONS
(A) VECTOR DATA SYSTEMS, INC.
On August 29, 1997, the Company acquired all of the outstanding stock of
Vector Data Systems, Inc., as well as Vector's eighty percent interest in Vector
Data Systems (UK) Limited (collectively, "Vector"). The consideration paid by
Anteon to the former shareholders of Vector was approximately $19 million in
cash financed through borrowings under an existing revolving line of credit with
a financial institution (see note 7). Additional consideration of up to $6
million may be paid by the Company and is contingent upon Vector meeting certain
revenue and gross profit thresholds for 1998 and 1999. The maximum additional
consideration that could be paid to Vector for meeting or exceeding all of the
specified thresholds would be up to $3 million per year for 1998 and 1999.
Vector did not meet the revenue and gross profit thresholds in 1998. The
acquisition of Vector was accounted for using the purchase method whereby the
net tangible and identifiable intangible assets acquired and liabilities assumed
were recognized at their estimated fair market values as of the date of the
combination. Additional consideration earned by Vector would be accounted for by
the Company as an increase of goodwill from the combination.
The total purchase price paid, including transaction costs, of approximately
$19.5 million, was allocated to the assets and liabilities acquired as follows
(in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 2,306
Accounts receivable................................................ 2,951
Prepaid expenses and other current assets.......................... 50
Property and equipment............................................. 340
Deferred tax assets, net........................................... 121
Goodwill........................................................... 17,215
Accounts payable and accrued expenses.............................. (3,414)
Minority interest.................................................. (24)
---------
Total consideration.......................................... $ 19,545
---------
---------
</TABLE>
Vector also provides professional information technology, systems and
software development, high technology research, and engineering services
primarily to the U.S. government and its agencies.
The following unaudited pro forma summary presents consolidated information
as if the Vector acquisition had occurred at April 1, 1996, the date of the
acquisition of Anteon by Azimuth. The pro forma
F-22
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
summary is provided for informational purposes only and is based on historical
information that does not necessarily reflect actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
combined entity:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1,
1996
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Total revenues................................................... $ 191,343 133,212
Total expenses................................................... 190,161 132,367
------------ ------------
Net income................................................. $ 1,182 845
------------ ------------
------------ ------------
</TABLE>
(B) TECHMATICS, INC.
On May 29, 1998, the Company acquired all of the outstanding stock of
Techmatics, Inc. ("Techmatics"), a subchapter S corporation. The consideration
paid by Anteon to the former shareholders and option holders of Techmatics was
approximately $31 million in cash, $27 million due at closing and financed
through an existing revolving line of credit with a financial institution (see
note 7), $4 million in cash payable in two non-interest bearing installments
payable no later than April 1, 1999, and $10 million in subordinated notes
payable. Additional consideration of up to $6.25 million may be paid by the
Company but is contingent upon Techmatics meeting certain operating profit
thresholds for its fiscal year ending June 30, 1999 or the year ending December
31, 1999 depending on the date chosen by Anteon. Interest at rates of 6 percent
per year and 7.5 percent per year accrue beginning September 30, 1999 and April
1, 2000, respectively, on the amount of contingent consideration to be paid
based on either the June 30, 1999 financial results or the December 31, 1999
financial results, respectively, whichever is chosen as the measurement date by
Anteon. The acquisition of Techmatics was accounted for using the purchase
method whereby the net tangible and identifiable intangible assets acquired and
liabilities assumed were recognized at their estimated fair market value as of
the date of combination. Additional consideration earned by Techmatics would be
accounted for by the Company as an increase of goodwill from the combination.
The total purchase price paid, including transaction costs, of approximately
$40.3 million, was allocated to the assets and liabilities acquired as follows
(in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents......................................... $ 845
Accounts receivable............................................... 23,089
Prepaid expenses and other current assets......................... 168
Property and equipment............................................ 2,416
Other long-term assets............................................ 337
Noncompete agreements............................................. 2,850
Goodwill.......................................................... 26,779
Accounts payable and accrued expenses............................. (15,134)
Long-term debt.................................................... (786)
Other liabilities................................................. (251)
---------
Total consideration......................................... $ 40,313
---------
---------
</TABLE>
F-23
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
In conjunction with the purchase agreement, the Company entered into
noncompete agreements for approximately $2,850,000, payable over a three-year
period and discounted to $2,654,000 as of the date of acquisition, with three
employees of Techmatics. In addition, the Company assumed certain tax
obligations of the former shareholders of Techmatics amounting to $4,000,000
payable over the two-year period ended May 31, 1999, and discounted to
$3,762,000 as of the date of acquisition.
Techmatics also provides professional information technology, systems and
software development, high technology research, and engineering services
primarily to the U.S. government and its agencies.
The following unaudited pro forma summary presents consolidated information
as if the Techmatics acquisition had occurred at January 1, 1997. The pro forma
summary is provided for informational purposes only and is based on historical
information that does not necessarily reflect actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
combined entity:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Total revenues................................................... $ 282,539 239,284
Total expenses................................................... 279,970 239,073
------------ ------------
Net income................................................. $ 2,569 211
------------ ------------
------------ ------------
</TABLE>
(4) ACCOUNTS RECEIVABLE
The components of accounts receivable as of December 31, 1998 and 1997, are
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Billed and billable...................................................... $ 67,018 27,496
Unbilled................................................................. 3,114 4,896
Retainages due upon contract completion.................................. 1,380 1,007
Allowance for doubtful accounts.......................................... (3,459) (3,994)
--------- ---------
Total.............................................................. $ 68,053 29,405
--------- ---------
--------- ---------
</TABLE>
Unbilled costs and fees and retainages billable upon completion of contracts
are amounts due primarily within one year and will be billed on the basis of
contract terms and delivery schedules.
The accuracy and appropriateness of the Company's direct and indirect costs
and expenses under its government contracts, and therefore its accounts
receivable recorded pursuant to such contracts, are subject to extensive
regulation and audit, including by the U.S. Defense Contract Audit Agency
("DCAA") or by other appropriate agencies of the U.S. government. Such agencies
have the right to challenge the Company's cost estimates or allocations with
respect to any government contract. Additionally, a substantial portion of the
payments to the Company under government contracts are provisional payments that
are subject to potential adjustment upon audit by such agencies. In the opinion
of management, any adjustments likely to result from inquiries or audits of its
contracts would not have a material adverse impact on the Company's financial
condition or results of operations.
F-24
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1998 and
1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Computer hardware and software............................................. $ 6,165 2,664
Furniture and equipment.................................................... 1,111 356
Leasehold improvements..................................................... 201 127
--------- ---------
7,477 3,147
Less--accumulated depreciation and amortization............................ (2,940) (1,562)
--------- ---------
$ 4,537 1,585
--------- ---------
--------- ---------
</TABLE>
(6) ACCRUED EXPENSES
The components of accrued expenses as of December 31, 1998 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Accrued payroll and related benefits....................................... $ 10,923 5,758
Accrued subcontractor costs................................................ 4,693 1,823
Accrued additional consideration for Techmatics acqusition................. 2,940 --
Accrued legal.............................................................. 949 691
Accrued interest........................................................... 748 513
Other accrued expenses..................................................... 3,085 562
--------- ---------
$ 23,338 9,347
--------- ---------
--------- ---------
</TABLE>
(7) INDEBTEDNESS
(A) BANK LOAN AGREEMENT
Concurrent with the Anteon acquisition, the Company entered into a Business
Loan and Security Agreement (the "Bank Loan Agreement") with two commercial
banks. Under the terms of the Bank Loan Agreement, the Company entered into
promissory notes for an aggregate available financing facility of $38 million.
Concurrent with the Vector acquisition, the Bank Loan Agreement was amended (the
"Amended Bank Loan Agreement") whereby the financial institution increased the
promissory notes by $6 million for an aggregate available facility of $44
million. The facility was comprised of revolving promissory notes for aggregate
borrowings of up to $22 million based on a portion of eligible billed accounts
receivable (Facility A); revolving promissory notes for aggregate borrowings of
up to $16 million based on a portion of eligible unbilled accounts receivable
(Facility B); and term promissory notes for an aggregate of $6 million (Facility
C). The available facility limits on the Facility A and Facility B promissory
notes were approximately $17,760,000 and $10,860,000, respectively, as of
December 31, 1997. As of March 18, 1998, this Bank Loan Agreement was terminated
and replaced by a $125 million Credit Agreement as discussed below.
Prior to the Vector acquisition, interest on Facility A accrued at either
the prime rate plus 0.25 percent or the LIBOR Rate plus 2.5 percent. Under the
Amended Bank Loan Agreement, the interest rate on Facility A varied based on the
Company's ratio of debt to earnings before income taxes, depreciation and
F-25
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
amortization, calculated quarterly. Interest was payable on a quarterly basis.
During the years ended December 31, 1998 and 1997, interest on Facility A ranged
from 8.13 percent to 8.75 percent and 7.19 percent to 8.75 percent,
respectively. For the period April 1, 1996 through December 31, 1996, the
interest rate ranged from 8.03 percent to 8.5 percent.
Facility B accrued interest at either the prime rate plus 0.75 percent or
the LIBOR rate plus 3 percent and was payable on a quarterly basis. Interest
rates charged on Facility B ranged from 9.0 percent to 9.25 percent and 9.0
percent to 9.25 percent, respectively, during the years ended December 31, 1998
and 1997 and from 8.53 percent to 9.0 percent for the period from April 1, 1996
to December 31, 1996.
Facility C accrued interest at either the prime rate plus 1.25 percent or
the LIBOR rate plus 3.5 percent and was payable on a quarterly basis. Principal
amounts were due in equal quarterly installments of $500,000. Beginning in April
1997, additional principal amounts could also be due on the Facility C
promissory notes based on certain excess eligible billed accounts receivable
and/or excess cash flows, as defined in the Amended Bank Loan Agreement. No such
additional principal amounts became due during 1998 or 1997. Interest rates
charged on Facility C ranged from 9.22 percent to 9.75 percent and 9.0 percent
to 9.25 percent, respectively, during the years ended December 31, 1998 and 1997
and from 9.03 percent to 9.5 percent for the period from April 1, 1996 to
December 31, 1996.
As of December 31, 1998 and 1997, the outstanding amounts under the Bank
Loan Agreement are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Facility A.............................................................. $ -- 14,700
Facility B.............................................................. -- 6,400
Facility C.............................................................. -- 3,000
--------- ---------
$ -- 24,100
--------- ---------
--------- ---------
</TABLE>
Total interest expense incurred on these financial arrangements was
approximately $1,079,000 and $1,891,000, respectively, for the years ended
December 31, 1998 and 1997 and $1,382,000 for the period from April 1 1996 to
December 31, 1996 to December 31, 1996. Upon termination of this Bank Loan
Agreement, all principal and interest due on the existing Facilities A, B and C
was paid in full.
The bank notes were secured by certain assets of the Company and certain
assets of Vector. Vector's security interest was limited to its obligations
under these bank notes. The terms of the Amended Bank Loan Agreement restricted
the ability of the Company to pay dividends, although the Company could have
declared dividends payable to Azimuth in order for Azimuth to pay required
interest payments on certain of its long-term debt.
During 1997, the Company wrote off the remaining balance of deferred
financing costs of approximately $522,000 upon the effective date of the Amended
Bank Loan Agreement. This amount is recorded in interest expense in the
consolidated statement of income for the year ended December 31, 1997.
(B) CREDIT AGREEMENT
On March 18, 1998, the Company entered into a Credit Agreement (the "Credit
Agreement") with six commercial banks. Under the terms of the Credit Agreement,
the Company entered into promissory notes for an aggregate available financing
facility of $125 million. The new credit facility is comprised of a
F-26
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
revolving credit facility for aggregate borrowings of up to $75 million, based
on a portion of eligible billed accounts receivable and a portion of eligible
unbilled accounts receivable (Revolving Facility); and an acquisition credit
facility for aggregate borrowings of up to $50 million (Acquisition Facility).
The Revolving Facility and the Acquisition Facility both mature on March 18,
2003.
Under the Credit Agreement, the interest rate on the Revolving Facility
varies based on Anteon's ratio of debt to earnings before income taxes,
depreciation and amortization, calculated quarterly. Interest is payable on a
quarterly basis. During the year ended December 31, 1998, interest on the
Revolving Facility ranged from 7.8125 percent to 8.75 percent.
The interest rate on the Acquisition Facility varies using a
performance-based interest rate schedule measured using the Company's ratio of
debt-to-earnings before income taxes, depreciation and amortization and is
calculated quarterly. Interest is payable on a quarterly basis. Interest rates
charged on the Acquisition Facility ranged from 7.5 percent to 9.25 percent
during the year ended December 31, 1998.
As of December 31, 1998, the outstanding amounts under the Credit Agreement
are as follows (in thousands):
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Revolving Facility................................................................. $ 35,400
Acquisition Facility............................................................... 35,000
---------
$ 70,400
---------
---------
</TABLE>
The remaining available facility limits on the Revolving Facility and
Acquisition Facility promissory notes were approximately $11.8 million and $15
million, respectively, as of December 31, 1998.
Total interest expense incurred on the Revolving and Acquisition Facilities
arrangements for the year ending December 31, 1998 was approximately $3,475,000.
The Revolving Facility is secured by certain assets of the Company and
certain assets of its subsidiaries. The subsidiaries' security interest is
limited to its obligations under these bank notes. The terms of the Credit
Agreement restrict the ability of the Company to pay dividends, although Anteon
may declare dividends payable to Azimuth in order to pay required payments on
certain of its long-term debt.
Deferred financing costs of approximately $874,000 relating to the Credit
Agreement are included in other assets in the accompanying consolidated balance
sheet as of December 31, 1998.
(C) SUBORDINATED NOTES PAYABLE
In connection with the purchase of Techmatics, the Company entered into
subordinated promissory notes with the Techmatics shareholders and option
holders as of the date of acquisition in the principal amount of $10,000,000,
discounted as of the date of acquisition to approximately $8,880,000.
The notes are to be paid in two installments with one-tenth of the total
amount payable due May 31, 1999 and the remaining nine-tenths due May 31, 2000.
Interest accrues beginning May 31, 1999 at 6 percent per year on four-ninths of
the principal amount outstanding. All overdue amounts accrue interest at 7.5
percent per year.
This debt is subordinate to the $125 million Credit Agreement.
F-27
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Total interest expense incurred on the subordinated notes payable for the
year ended December 31, 1998 was approximately $423,000.
(D) FUTURE MATURITIES
Scheduled future maturities under the Company's indebtedness are as follows
(in thousands):
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999....................................................... $ 967
2000....................................................... 8,335
2001....................................................... --
2002....................................................... --
2003....................................................... 70,400
Thereafter................................................. --
---------
Total.................................................. $ 79,702
---------
---------
</TABLE>
(E) INTEREST RATE SWAP AGREEMENTS
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its Credit Agreement. At December 31,
1998, the Company had outstanding interest rate swap agreements with commercial
banks having a total notional principal amount of $15 million. Those swap
agreements effectively changed the Company's interest rate exposure for $5
million based on a May 1998 swap agreement, $5 million based on a June 1998 swap
agreement, and $5 million based on a September 1998 swap agreement on its $125
million Credit Agreement due March 13, 2003 to fixed rates of 5.8 percent, 5.75
percent and 5.02 percent, respectively. The interest rate swap agreements mature
as of December 31, 2002, December 31, 2003 and September 25, 2003, respectively.
The differential to be paid or received is accrued as interest rates change and
is recognized over the life of the agreements. The Company is exposed to credit
loss in the event of nonperformance by the other parties to the interest rate
swap agreements; however, the Company does not anticipate nonperformance by the
counterparties.
F-28
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(8) INCOME TAXES
The provisions for income taxes for the years ended December 31, 1998 and
1997, and the periods from April 1, 1996 to December 31, 1996 and January 1,
1996 to March 31, 1996, consist of the following (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR
SUCCESSOR SUCCESSOR PERIOD FROM PREDECESSOR
YEAR ENDED YEAR ENDED APRIL 1, 1996 PERIOD FROM
DECEMBER DECEMBER TO JANUARY 1, 1996
31, 31, DECEMBER 31, TO
1998 1997 1996 MARCH 31, 1996
----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Current (benefit)
provision:
Federal.................. $ (115) $ 1,618 $ -- $ 235
State.................... (16) 290 -- 68
Foreign.................. 68 (19) -- --
----------- ----------- ----- -----
Total current
provision.......... (63) 1,889 -- 303
----------- ----------- ----- -----
Deferred provision
(benefit):
Federal.................. 2,067 (708) 360 --
State.................... 380 (118) 56 --
Foreign.................. (31) -- -- --
----------- ----------- ----- -----
Total current
provision
(benefit).......... 2,416 (826) 416 --
----------- ----------- ----- -----
Total income tax
provision.......... $ 2,353 $ 1,063 $ 416 $ 303
----------- ----------- ----- -----
----------- ----------- ----- -----
</TABLE>
The income tax provisions for the years ended December 31, 1998 and 1997,
and the periods from April 1, 1996 to December 31, 1996 and January 1, 1996 to
March 31, 1996 are different from that computed using the statutory U.S. federal
income tax rate of 34 percent as set forth below (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR
SUCCESSOR SUCCESSOR PERIOD FROM PREDECESSOR
YEAR ENDED YEAR ENDED APRIL 1, 1996 PERIOD FROM
DECEMBER DECEMBER TO JANUARY 1, 1996
31, 31, DECEMBER 31, TO
1998 1997 1996 MARCH 31, 1996
----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Expected tax expense
computed at federal
rate..................... $ 1,648 $ 914 $ 416 $ 257
State taxes, net of federal
benefit.................. 197 111 37 46
Nondeductible expenses..... 42 9 18 --
Goodwill amortization...... 333 20 -- --
Foreign losses............. 123 9 -- --
Other...................... 10 -- (55) --
----------- ----------- ----- -----
$ 2,353 $ 1,063 $ 416 $ 303
----------- ----------- ----- -----
----------- ----------- ----- -----
</TABLE>
F-29
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The tax effect of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities as of December 31, 1998 and 1997, are
presented below (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued expenses......................................................... $ 1,662 2,812
Intangible assets, due to differences in amortization.................... 2,791 1,581
Accounts receivable allowances........................................... 686 165
Property and equipment, due to differences in depreciation............... -- 142
--------- ---------
Total deferred tax assets............................................ 5,139 4,700
--------- ---------
Deferred tax liabilities:
Deductible goodwill, due to differences in amortization.................. 3,582 2,185
Revenue recognition differences.......................................... 3,332 1,860
Property and equipment, due to differences in depreciation............... 17 --
Other.................................................................... 61 7
--------- ---------
Total deferred tax liabilities....................................... 6,992 4,052
--------- ---------
Deferred tax assets (liabilities), net............................... $ (1,853) 648
--------- ---------
--------- ---------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Management considers scheduled
reversals of deferred tax liabilities, projected future taxable income, and tax
planning strategies that can be implemented by the Company in making this
assessment. Based upon the level of historical taxable income, scheduled
reversal of deferred tax liabilities, and projections of future taxable income
over the periods in which the temporary differences become deductible based on
available tax planning strategies, management presently believes that it is more
likely than not that the Company will realize all of the benefits of these
deductible differences and, accordingly, has established no valuation allowance
against the deferred tax assets as of December 31, 1998 or 1997.
(9) EMPLOYEE BENEFIT PLANS
Employees of the Company may participate in 401(k) retirement savings plans,
whereby employees may elect to make contributions pursuant to a salary reduction
agreement upon meeting eligibility requirements. Participants may contribute up
to 15 percent of salary in any calendar year to these Plans, provided that
amounts in total do not exceed certain statutory limits. The Company matches up
to 50 percent of the first 6 percent of a participant's contributions subject to
certain limitations. The Company made contributions to these plans of
approximately $1,995,000, $1,207,000, $819,000, and $282,000 for the years ended
December 31, 1998 and 1997, and the periods from April 1, 1996 to December 31,
1996 and January 1, 1996 to March 31, 1996, respectively.
Effective January 1, 1999, a defined contribution plan previously
established at the subsidiary level was merged into the Anteon plan.
F-30
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Techmatics sponsors a defined health and welfare plan that provides health,
dental and short-term disability benefits for all eligible full-time employees
of Techmatics. The plan is self-insured and has specific employee stop-loss
coverage insurance of $50,000 and aggregate stop-loss coverage insurance which
is calculated based on monthly participation in the plan. Contributions to the
plan are made by both Techmatics and the employees and are maintained in a trust
fund intended to qualify as a tax-exempt Voluntary Employees' Beneficiary Trust
within the meaning of Section 501(c)(9) of the U.S. Internal Revenue Code.
Contributions by Techmatics are based upon estimates and on actual amounts of
claims processed. From the date of acquisition of Techmatics by the Company to
December 31, 1998, Techmatics made contributions to the plan of approximately
$879,000.
(10) EMPLOYEE STOCK OPTION PLAN
In February 1997, the Board of Directors approved the adoption of the Anteon
Corporation Omnibus Stock Plan (the Plan). At the discretion of the Board of
Directors, the Plan permits the granting of stock options, stock appreciation
rights, restricted or unrestricted stock awards, and/or phantom stock to
employees or directors of the Company. As of December 31, 1998, an aggregate of
325,000 shares of Anteon's common stock was reserved for issuance under the
Plan.
The exercise price of stock options granted is determined by the Board of
Directors but is not to be less than the fair value of the underlying shares of
common stock at the grant date.
For stock options granted to employees, 20 percent of the shares subject to
the options vest on the first anniversary of the grant date and an additional 20
percent vest on each succeeding anniversary of the grant date. The employees
have a period of three years from the vesting date to exercise the option to
purchase shares of the Company's common stock. In 1997, the Board of Directors
approved that 20 percent of the options issued on the August 1, 1997 grant date
vest immediately.
For stock options granted to directors of the Company, 33 1/3 percent of the
shares subject to the options vest on the first anniversary of the grant date
and an additional 33 1/3 percent vest on the two succeeding anniversaries of the
grant date. The directors have a period of two years from the vesting date to
exercise the option to purchase shares of the Company's common stock.
During 1998 and 1997, the Company granted stock options under this Plan for
151,450 and 171,630 shares, respectively, of the Company's common stock at
exercise prices ranging from $26.90 per share to
F-31
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
$37.30 per share and $6.75 per share to $18.37 per share, respectively. The
following tables summarize information regarding options under the Company's
stock option plans:
<TABLE>
<CAPTION>
WEIGHTED OUTSTANDING
AVERAGE AND
NUMBER OPTION PRICE EXERCISE EXERCISABLE
OF SHARES PER SHARE PRICE SHARES
--------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at April 1, 1996 and December
31, 1996............................... -- $ -- $ -- $ --
Granted.............................. 171,630 6.75-$18.37 8.42 --
Exercised............................ -- -- -- --
Cancelled or expired................. (6,200) 6.75-$18.37 11.44 --
--------- --------------- ----------- -----------
Outstanding at December 31, 1997......... 165,430 6.75-$18.37 8.32 19,325
Granted.............................. 151,450 26.90-$37.30 36.80 --
Exercised............................ (1,740) 6.75-$18.37 13.43 --
Cancelled or expired................. (10,600) 6.75-$37.30 14.74 --
--------- --------------- ----------- -----------
Outstanding at December 31, 1998......... 304,540 $ 6.75-$37.30 $ 22.17 52,209
--------- --------------- ----------- -----------
--------- --------------- ----------- -----------
</TABLE>
Option and weighted average price information by price group is as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING EXERCISABLE SHARES
------------------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE REMAINING NUMBER EXERCISE
OF SHARES PRICE LIFE OF SHARES PRICE
--------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
$6.75................................ 143,130 $ 6.75 7.5 19,325 $ 6.75
$18.37............................... 22,300 $ 18.37 7.8 -- --
December 31, 1998:
$6.75................................ 139,090 $ 6.75 6.5 49,909 $ 6.75
$18.37 to $26.90..................... 16,500 $ 18.89 6.8 2,300 $ 18.37
$32.17 to $37.30..................... 148,950 $ 36.93 7.7 -- --
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting for
the Plan. Adoption of the fair market value provisions prescribed in SFAS No.
123 is optional with respect to stock-based compensation to employees; however,
pro forma disclosures are required as if the Company adopted the fair value
recognition requirements under SFAS No. 123.
Had compensation cost for the Company's 1998 and 1997 grants under the Plan
been determined consistent with the fair market value provisions prescribed in
SFAS No. 123, the Company's pro forma net income for the years ended December
31, 1998 and 1997 would approximate $2,224,000 and $1,586,000, respectively,
using an expected option life of 7 years, dividend yield rate and volatility
rate of 0 percent, respectively, and a risk-free interest rate of 4.73 and 5.77
percent, respectively. The effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts.
F-32
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(11) COMPREHENSIVE INCOME
During 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS No. 130").
SFAS No. 130 requires the display of comprehensive income, which includes the
Company's unrealized gains (losses) on investments and the accumulated foreign
currency translation adjustment. The Company has presented comprehensive income
as a component of the accompanying consolidated statements of stockholders'
equity. There were no unrealized gains (losses) on investments as of December
31, 1997 or 1996. During the year ended December 31, 1998, $392,000 of
unrealized gains on investments was recognized. The amount of accumulated
foreign currency translation adjustment was approximately $7,000 and $0 as of
December 31, 1998 or 1997, respectively.
(12) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases facilities under operating leases expiring at various
dates through 2010. As of December 31, 1998, the aggregate minimum annual
rental commitments under noncancelable operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1999............................................................... $ 4,047
2000............................................................... 3,280
2001............................................................... 2,203
2002............................................................... 1,876
2003............................................................... 1,900
Thereafter......................................................... 13,172
---------
Total minimum lease payments................................. $ 26,478
---------
---------
</TABLE>
Rent expense under all operating leases for the year ended December 31, 1998
and 1997, and the periods from April 1, 1996 to December 31, 1996 and
January 1, 1996 to March 31, 1996 was approximately $5,644,000, $3,368,000,
$1,988,000, and $646,000, respectively.
(B) LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the ordinary course
of business. Management of the Company and its legal counsel cannot
currently predict the outcome of these matters, but do not believe that they
will have a material impact on the Company's financial position or results
of operations.
(C) MANAGEMENT FEES
During the year ended December 31, 1998, the Company incurred $400,000 of
management fees with Caxton-Iseman Capital, Inc., the majority shareholder
of Azimuth. No such fees were incurred in 1997 and 1996. Future management
fees due to Caxton-Iseman Capital, Inc. will be based upon the level of
advisory services provided to the Company.
F-33
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(13) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION
As of April 1999, the Company is contemplating participating in a private
debt offering for up to $120,000,000 in Senior Subordinated Notes (the "Notes").
Under the current structure of the Notes, the Company's wholly-owned domestic
subsidiaries would be guarantors (the "Subsidiary Guarantors") of the Notes.
Such guarantees are full, unconditional and joint and several. Separate
financial statements of the Subsidiary Guarantors are not presented because the
Company's management has determined that they would not be material to
investors. The following supplemental financial information sets forth, on a
combined basis, balance sheets, statements of operations and statements of cash
flows information for the Subsidiary Guarantors, the Company's non-guarantor
subsidiaries and for the Company.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------------------------------------
CONSOLIDATED
ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON
CONDENSED CONSOLIDATED BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash....................................... $ 154 $ (233) $ 235 $ -- $ 156
Receivables................................ 37,955 29,908 190 -- 68,053
Other current assets....................... 4,558 573 216 -- 5,347
Property and equipment, net................ 2,076 2,422 39 -- 4,537
Due from parent............................ 6,625 -- -- -- 6,625
Investment in and advances to
subsidiaries............................. 21,177 (4,009) 222 (17,390) --
Other long-term assets..................... 57,686 752 12 -- 58,450
----------- ----------- ------ ----------- ------------
Total assets........................... $ 130,231 $ 29,413 $ 914 $ (17,390) $ 143,168
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
Indebtedness............................... 79,702 -- -- -- 79,702
Accounts payable........................... 9,910 2,394 278 -- 12,582
Accrued expenses........................... 15,904 7,138 296 -- 23,338
Other current liabilities.................. 2,444 64 -- -- 2,508
Other long-term liabilities................ 1,033 226 37 -- 1,296
----------- ----------- ------ ----------- ------------
Total liabilities...................... 108,993 9,822 611 -- 119,426
Minority interest in subsidiary............ -- 37 -- -- 37
Total stockholders' equity................. 21,238 19,554 303 (17,390) 23,705
----------- ----------- ------ ----------- ------------
Total liabilities and stockholders'
equity................................... $ 130,231 $ 29,413 $ 914 $ (17,390) $ 143,168
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 186,995 $ 60,534 $ 2,376 $ (129) $ 249,776
Cost of revenues........................... 168,210 51,279 2,007 92 221,588
----------- ----------- ------ ----------- ------------
Gross profit............................... 18,785 9,255 369 (221) 28,188
Total operating expenses................... 11,748 5,873 345 (221) 17,745
----------- ----------- ------ ----------- ------------
Operating income........................... 7,037 3,382 24 -- 10,443
Interest expense (income), net............. 5,637 (13) (27) -- 5,597
Minority interest.......................... -- 25 -- -- 25
----------- ----------- ------ ----------- ------------
Income before provision for income taxes... 1,400 3,370 51 -- 4,821
Provision for income taxes................. 677 1,663 13 -- 2,353
----------- ----------- ------ ----------- ------------
Net income................................. $ 723 $ 1,707 $ 38 $ -- $ 2,468
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-34
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------
CONSOLIDATED
ANTEON GUARANTOR NON- GUARANTOR ANTEON
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net income................................................. $ 723 $ 1,707 $ 38 $ 2,468
Adjustments to reconcile change in net income to net cash
provided by (used for) operations:
Depreciation and amortization.......................... 898 877 62 1,837
Goodwill amortization.................................. 1,814 -- -- 1,814
Amortization of noncompetes............................ 530 -- -- 530
Amortization of deferred financing and contract costs.. 1,420 -- -- 1,420
Inventory obsolence reserve............................ 500 -- -- 500
Deferred income taxes.................................. 2,501 -- -- 2,501
Minority interest in earnings of subsidiary............ -- 25 -- 25
Changes in assets and liabilities:
Due from parent...................................... (730) -- -- (730)
(Increase) decrease in accounts receivable........... (15,996) 673 (236) (15,559)
Increase in income tax receivable.................... (2,138) -- -- (2,138)
Decrease in inventory................................ 2,259 -- -- 2,259
Increase in prepaid and other assets................. (446) (821) (265) (1,532)
Increase (decrease) in accounts payable and accrued
expenses........................................... (105) (2,678) 553 (2,230)
Increase (decrease) in other term liabilities........ 1,419 (843) (81) 495
----------- ----------- ----- ------------
Net cash provided by (used in) operating activities.. $ (7,351) $ (1,060) $ 71 $ (8,340)
----------- ----------- ----- ------------
Cash flows from investing activities:
Purchases of property and equipment.................... (1,402) (609) (78) (2,089)
Acquisition of Techmatics, net of cash acquired........ (30,532) 845 -- (29,687)
Purchases of investments............................... (5,574) -- -- (5,574)
Other, net............................................. (113) -- -- (113)
----------- ----------- ----- ------------
Net cash provided by (used in) investing
activities......................................... $ (37,621) $ 236 $ (78) $ (37,463)
----------- ----------- ----- ------------
Cash flow from financing activities
Proceeds from bank notes payable....................... 278,500 -- -- 278,500
Principal payments on bank notes payable............... (232,200) -- -- (232,200)
Intial Capitalization of Vecter Korea.................. (195) -- 195 --
Initial Capitalization of Vecter Australia............. (30) -- 30 --
Proceeds from issuance of common stock................. 22 -- -- 22
Deferred financing costs............................... (1,015) -- -- (1,015)
----------- ----------- ----- ------------
Net cash provided by financing activities............ $ 45,082 $ -- $ 225 $ 45,307
----------- ----------- ----- ------------
Net increase (decrease) in cash............................ 110 (824) 218 (496)
Cash, beginning of year.................................... 44 591 17 652
----------- ----------- ----- ------------
Cash, end of year.......................................... $ 154 $ (233) $ 235 $ 156
----------- ----------- ----- ------------
----------- ----------- ----- ------------
</TABLE>
F-35
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------------------------------------
CONSOLIDATED
ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON
CONDENSED CONSOLIDATED BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
----------- ------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash....................................... $ 44 $ 591 $ 17 $ -- $ 652
Receivables................................ 25,764 2,882 175 584 29,405
Other current assets....................... 5,649 44 (5) (1) 5,687
Property and equipment, net................ 1,300 275 10 -- 1,585
Due from parent............................ 1,045 -- -- -- 1,045
Other long-term assets..................... 30,198 -- -- -- 30,198
Investment in subsidiaries................. 3,130 -- -- (3,130) --
----------- ------ ----- ----------- ------------
Total assets........................... $ 67,130 $ 3,792 $ 197 $ (2,547) $ 68,572
----------- ------ ----- ----------- ------------
----------- ------ ----- ----------- ------------
Debt....................................... 24,100 -- -- -- 24,100
Accounts payable........................... 12,028 (110) 10 702 12,630
Accrued expenses........................... 8,860 477 10 -- 9,347
Other long-term liabilities................ 1,637 31 118 (119) 1,667
----------- ------ ----- ----------- ------------
Total liabilities...................... 46,625 398 138 583 47,744
Minority interest in subsidiary............ -- 12 -- -- 12
Total stockholders' equity................. 20,505 3,382 59 (3,130) 20,816
----------- ------ ----- ----------- ------------
Total liabilities and stockholders'
equity................................... $ 67,130 $ 3,792 $ 197 $ (2,547) $ 68,572
----------- ------ ----- ----------- ------------
----------- ------ ----- ----------- ------------
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 170,736 $ 5,330 $ 226 -- $ 176,292
Cost of revenues........................... 154,968 4,263 308 -- 159,539
----------- ------ ----- ----------- ------------
Gross profit............................... 15,768 1,067 (82) -- 16,753
Total operating expenses................... 11,294 379 -- -- 11,673
----------- ------ ----- ----------- ------------
Operating income (loss).................... 4,474 688 (82) -- 5,080
Interest expense (income) net.............. 2,372 (6) (1) -- 2,365
Minority interest.......................... -- 13 13
----------- ------ ----- ----------- ------------
Income before provision for income taxes... 2,102 681 (81) -- 2,702
Provision for income taxes................. 824 271 (32) -- 1,063
----------- ------ ----- ----------- ------------
Net income................................. $ 1,278 $ 410 $ (49) $ $ 1,639
----------- ------ ----- ----------- ------------
----------- ------ ----- ----------- ------------
</TABLE>
F-36
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
CONSOLIDATED
ANTEON GUARANTOR NON- GUARANTOR ANTEON
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
Net income (loss).......................................... $ 1,278 410 (49) 1,639
Adjustments to reconcile change in net income (loss) to net
cash provided by operations:
Minority interest in earnings of subsidiaries.......... -- (13) -- (13)
Depreciation and amortization.......................... 843 42 10 895
Goodwill amortization.................................. 742 -- -- 742
Amortization of noncompete agreements.................. 2,286 -- -- 2,286
Amortization of deferred financing and contract costs.. 1,209 -- -- 1,209
Loss on disposal of equipment.......................... 16 5 -- 21
Deferred income taxes.................................. (943) -- -- (943)
Changes in assets and liabilities:
Due from parent........................................ (531) -- -- (531)
(Increase) decrease in accounts receivable............. 8,322 1,939 (175) 10,086
Decrease in inventory.................................. (2,759) -- -- (2,759)
(Increase) decrease in prepaid and other assets........ (245) (279) 6 (518)
Decrease in other assets............................... 414 -- -- 414
Increase (decrease) in accounts payable and accrued
expenses............................................. 3,403 (1,857) 20 1,566
Increase (decrease) in other term liabilities.......... (378) 274 104 --
----------- ----------- ----- ------------
Net cash provided by operating activities.................. $ 13,657 $ 521 $ (84) $ 14,094
----------- ----------- ----- ------------
Cash flows from investing activities:
Purchases of property and equipment.................... (796) (1) (20) (817)
Acquisition of Vector Data, net of cash................ (17,239) -- -- (17,239)
----------- ----------- ----- ------------
Net cash used in investing activities...................... $ (18,035) $ (1) $ (20) $ (18,056)
Cash flow from financing activities
Proceeds from bank notes payable....................... 199,300 -- -- 199,300
Principal payments on bank notes payable............... (194,800) -- -- (194,800)
Initial Capitalization of Vector U.K................... -- (121) 121 --
----------- ----------- ----- ------------
Net cash provided by financing activities.................. $ 4,500 $ (121) $ 121 $ 4,500
----------- ----------- ----- ------------
Net increase (decrease) in cash............................ 122 399 17 538
Cash, beginning of year.................................... (78) 192 -- 114
----------- ----------- ----- ------------
Cash, end of year.......................................... $ 44 $ 591 $ 17 $ 652
----------- ----------- ----- ------------
----------- ----------- ----- ------------
</TABLE>
F-37
<PAGE>
TECHMATICS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash................................................................................... $ 691,656
Accounts receivable:
Billed............................................................................... 15,321,788
Unbilled............................................................................. 5,323,289
Prepaid expenses and other............................................................. 810,362
Notes receivable from employees........................................................ 302,725
----------
TOTAL CURRENT ASSETS..................................................................... 22,449,820
PROPERTY AND EQUIPMENT
Computer equipment..................................................................... 4,954,820
Furniture and equipment................................................................ 1,907,799
Real property.......................................................................... 155,517
Leasehold improvements................................................................. 251,752
Automobiles............................................................................ 60,529
----------
7,330,417
Less accumulated depreciation and amortization......................................... (4,959,689)
----------
PROPERTY AND EQUIPMENT, NET.............................................................. 2,370,728
NONCURRENT ASSETS
Other assets........................................................................... 1,191,226
Net assets of discontinued operations.................................................. 430,496
----------
TOTAL ASSETS............................................................................. $26,442,270
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit......................................................................... $1,856,400
Accounts payable....................................................................... 2,989,550
Accrued expenses....................................................................... 6,779,167
State income taxes payable............................................................. 66,426
----------
TOTAL CURRENT LIABILITIES................................................................ 11,691,543
----------
DEFERRED RENT, net of current portion.................................................... 35,932
DEFERRED STATE INCOME TAXES.............................................................. 101,382
OTHER LONG-TERM LIABILITIES.............................................................. 1,273,992
----------
TOTAL LIABILITIES........................................................................ 13,102,849
COMMITMENTS AND CONTINGENCIES............................................................
STOCKHOLDERS' EQUITY
Common stock
Class A, voting, $0.01 par value, 2,500,000 shares authorized, 1,463,334 shares
issued and outstanding.............................................................. 14,633
Class A, nonvoting, $0.01 par value, 7,500,000 shares authorized, 658,066 shares
issued and outstanding.............................................................. 6,580
Additional paid-in capital............................................................. 473,924
Retained earnings...................................................................... 12,844,284
----------
TOTAL STOCKHOLDERS' EQUITY............................................................... 13,339,421
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $26,442,270
----------
----------
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-38
<PAGE>
TECHMATICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------------
<S> <C> <C>
1998 1997
------------- --------------
<CAPTION>
CONTRACT REVENUES.................................................................. $ 51,389,599 $ 39,683,673
<S> <C> <C>
CONTRACT AND ADMINISTRATIVE COSTS.................................................. 48,068,972 37,587,445
------------- --------------
3,320,627 2,096,228
INTEREST EXPENSE, net of interest income of $0 and $104,391 for the nine months
ended March 31, 1998 and 1997, respectively....................................... (195,505) 98,020
------------- --------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES............................ 3,125,122 2,194,248
PROVISION FOR INCOME TAXES......................................................... -- --
------------- --------------
NET EARNINGS FROM CONTINUING OPERATIONS............................................ 3,125,122 2,194,248
DISCONTINUED OPERATIONS:
Loss from operations of TIAC..................................................... -- (1,509,885)
------------- --------------
NET EARNINGS....................................................................... $ 3,125,122 $ 684,363
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-39
<PAGE>
TECHMATICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations........................................... $ 3,125,122 $ 2,194,248
Loss from operations of discontinued subsidiary................................... -- (1,509,885)
------------- -------------
Net earnings...................................................................... 3,125,122 684,363
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization................................................... 866,245 956,723
Changes in assets and liabilities
Increase in accounts receivable............................................... (4,761,127) (602,742)
Decrease (increase) in prepaid expenses and other assets...................... (78,980) 659,034
Decrease in other assets...................................................... 140,460 102,164
Decrease in net assets of discontinued operations............................. 130,933 --
Decrease in accounts payable.................................................. (599,228) (1,302,419)
Increase in accrued expenses.................................................. 1,902,047 837,009
(Decrease) increase in state income taxes payable............................. 36 (35,000)
Decrease in long-term deferred rent........................................... (8,185) (58,205)
Increase in other long-term liabilities....................................... 148,575 179,286
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... 865,898 1,420,213
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment............................................... (544,322) (1,472,244)
Distributions on note receivable.................................................. (302,725) --
Proceeds from sale of investments................................................. -- 2,287,484
Purchases of investments, net..................................................... -- --
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................................. (847,047) 815,240
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line-of-credit agreement........................ 329,600 1,665,100
Proceeds from exercise of stock options........................................... -- 38,171
Repurchase of common stock........................................................ -- (69,723)
Distribution to shareholders...................................................... -- (2,545,000)
Dividends paid to shareholders.................................................... -- (1,250,000)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................. 329,600 (2,161,452)
------------- -------------
NET INCREASE IN CASH................................................................ 348,451 74,001
CASH AT BEGINNING OF PERIOD......................................................... 343,205 117,730
------------- -------------
CASH AT END OF PERIOD............................................................... $ 691,656 $ 191,731
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for--
Income taxes.................................................................... $ -- $ 35,000
------------- -------------
------------- -------------
Interest........................................................................ $ 195,277 $ 29,901
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-40
<PAGE>
TECHMATICS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1--UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet, statements of earnings and cash
flows as of March 31, 1998 and for the nine months ended March 31, 1998 and 1997
have been prepared in accordance with generally accepted accounting principles
for interim financial information. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the interim period are
not necessarily indicative of the results that may be expected for any future
period, including the year ending June 30, 1998.
NOTE 2--INCOME TAXES
Through March 31, 1998, the Company continued its election to be treated as
an S Corporation for federal and certain state income tax purposes. Accordingly,
the accompanying unaudited consolidated statements of earnings show no provision
for federal income taxes. State income taxes in those states that do not
recognize the Company's S Corporation status were not significant.
NOTE 3--SUBSEQUENT EVENT--DISCONTINUED OPERATIONS OF TECHMATICS INFORMATION
ALLIANCE AND COMMUNICATIONS (TIAC)
On July 1, 1997, the Company adopted a formal plan to discontinue the
operations of Techmatics Information Alliance and Communications (TIAC). TIAC
was a provider of information services to commercial customers, principally
related to the Internet. Certain assets were sold for cash to an unrelated third
party. Other assets were liquidated in the ordinary course of business. Assets
disposed of consisted primarily of accounts receivable, supplies and equipment.
The results of operations of TIAC for the nine months ended March 31, 1997
have been reported as discontinued operations. Net sales for TIAC for the nine
months ended March 31, 1998 and 1997 were $0 and approximately $690,000,
respectively.
NOTE 4--SUBSEQUENT EVENT
Effective May 29, 1998, all of the Company's outstanding common stock was
acquired by Anteon Corporation, a privately-held company that provides
professional services primarily to the U.S. Government and its agencies.
F-41
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
TECHMATICS, Inc.
We have audited the accompanying consolidated balance sheet of TECHMATICS,
Inc., and subsidiary as of June 30, 1997, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of TECHMATICS,
Inc., and subsidiary as of June 30, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Vienna, Virginia
August 8, 1997 (except for Note C,
as to which the date is August 31, 1997)
F-42
<PAGE>
TECHMATICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash................................................................................... $ 343,205
Accounts receivable
Billed............................................................................... 12,598,142
Unbilled............................................................................. 3,285,808
Prepaid expenses and other............................................................. 617,653
Notes receivable from employees........................................................ 113,729
----------
TOTAL CURRENT ASSETS..................................................................... 16,958,537
PROPERTY AND EQUIPMENT
Computer equipment..................................................................... 4,539,084
Furniture and equipment................................................................ 1,809,120
Real property.......................................................................... 155,517
Leasehold improvements................................................................. 375,952
----------
6,879,673
Less accumulated depreciation and amortization......................................... (4,187,022)
----------
PROPERTY AND EQUIPMENT, NET.............................................................. 2,692,651
NONCURRENT ASSETS
Other assets........................................................................... 1,331,686
Net assets of discontinued operations.................................................. 708,324
----------
TOTAL ASSETS............................................................................. $21,691,198
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit......................................................................... $1,526,800
Accounts payable....................................................................... 3,588,778
Accrued expenses....................................................................... 4,877,120
State income taxes payable............................................................. 66,390
----------
TOTAL CURRENT LIABILITIES................................................................ 10,059,088
DEFERRED RENT, net of current portion.................................................... 44,117
DEFERRED STATE INCOME TAXES.............................................................. 101,382
OTHER LONG-TERM LIABILITIES.............................................................. 1,125,417
----------
TOTAL LIABILITIES........................................................................ 11,330,004
COMMITMENTS AND CONTINGENCIES............................................................
STOCKHOLDERS' EQUITY
Common stock
Class A, voting, $0.01 par value, 2,500,000 shares authorized, 1,463,334 shares
issued and outstanding.............................................................. 14,633
Class A, nonvoting, $0.01 par value, 7,500,000 shares authorized, 658,066 shares
issued and outstanding.............................................................. 6,580
Additional paid-in capital........................................................... 473,924
Retained earnings.................................................................... 9,866,057
----------
TOTAL STOCKHOLDERS' EQUITY............................................................... 10,361,194
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $21,691,198
----------
----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE>
TECHMATICS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C>
CONTRACT REVENUE............................................................... $56,676,949
CONTRACT AND ADMINISTRATIVE COSTS.............................................. 52,882,124
----------
3,794,825
INTEREST INCOME, net of interest expense of $29,901............................ 78,300
OTHER EXPENSES................................................................. (308,594)
----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES........................ 3,564,531
PROVISION FOR INCOME TAXES..................................................... 29,278
----------
NET EARNINGS FROM CONTINUING OPERATIONS........................................ 3,535,253
DISCONTINUED OPERATIONS
Loss from operations of TIAC, net of income taxes of $27,235................. (2,231,731)
Loss on disposal of TIAC, including provision of operating losses of $149,459
during phase-out period, net of income tax benefit of $9,385............... (786,596)
----------
NET EARNINGS................................................................... $ 516,926
----------
----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE>
TECHMATICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------
VOTING NONVOTING ADDITIONAL
--------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- --------- --------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1996.................... 1,463,334 $ 14,633 616,526 $ 6,165 $ 384,630 $ 13,189,301 $ 13,594,729
Exercise of Stock
Options................. -- -- 60,540 605 114,424 -- 115,029
Stock Repurchased and
Canceled................ -- -- (19,000) (190) (25,130) (45,170) (70,490)
Distributions to
Shareholders............ -- -- -- -- -- (2,545,000) (2,545,000)
Dividends Paid........... -- -- -- -- -- (1,250,000) (1,250,000)
Net Income............... -- -- -- -- -- 516,926 516,926
---------- --------- --------- --------- ----------- ------------- -------------
Balance at June 30,
1997.................... 1,463,334 $ 14,633 658,066 $ 6,580 $ 473,924 $ 9,866,057 $ 10,361,194
---------- --------- --------- --------- ----------- ------------- -------------
---------- --------- --------- --------- ----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE>
TECHMATICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations....................................... $3,535,253
Loss from operations of discontinued subsidiary, TIAC......................... (2,231,731)
Loss on disposal of subsidiary................................................ (786,596)
----------
Net earnings.................................................................. 516,926
----------
Adjustments to reconcile net earnings to net cash provided by operating
activities
Loss on disposal of property and equipment.................................. 7,274
Depreciation and amortization............................................... 1,200,685
Provision for deferred state income taxes................................... (4,990)
Changes in assets and liabilities
Increase in accounts receivable........................................... (2,238,902)
Decrease in prepaid expenses and other assets............................. 386,059
Decrease in other assets.................................................. 3,552
Increase in net assets of discontinued operations......................... (53,398)
Increase in accounts payable.............................................. 1,327,301
Increase in accrued expenses.............................................. 1,054,482
Decrease in state income taxes payable.................................... (732)
Decrease in long-term deferred rent....................................... (14,088)
Increase in other long-term liabilities................................... 230,625
----------
Total Adjustments............................................................... 1,897,868
----------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... 2,414,794
----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment........................................... (2,322,816)
Repayments on note receivable................................................. (7,193)
Proceeds from sale of investments............................................. 2,351,093
----------
NET CASH USED IN INVESTING ACTIVITIES........................................... 21,084
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line-of-credit agreement................................. $1,526,800
Proceeds from exercise of stock options....................................... 151,654
Repurchase of common stock.................................................... (70,490)
Distribution to shareholders.................................................. (2,545,000)
Dividends paid to shareholders................................................ (1,250,000)
----------
NET CASH USED IN FINANCING ACTIVITIES........................................... (2,187,036)
----------
NET INCREASE IN CASH............................................................ 248,842
CASH AT BEGINNING OF YEAR....................................................... 94,363
----------
CASH AT END OF YEAR............................................................. $ 343,205
----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for--
Income taxes................................................................ $ 35,000
----------
Interest.................................................................... $ 29,901
----------
----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
TECHMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
TECHMATICS, Inc. (the Company), was incorporated March 15, 1982, under the
laws of the Commonwealth of Virginia for the purpose of engaging in a consulting
business. The Company specializes in engineering, management, and information
technology services primarily for agencies of the U.S. government. Services are
also provided to commercial enterprises.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
TECHMATICS, Inc., and its wholly owned subsidiary. Material intercompany
accounts and transactions have been eliminated.
REVENUE FROM CONTRACTS
Most of the Company's revenue is generated from cost-plus fixed fee level of
effort contracts, which require the Company to perform agreed-upon amounts of
labor hours within specified categories and skill levels. In return, the Company
receives reimbursement of its direct and indirect costs of contract performance,
within stipulated limits, plus a negotiated fixed fee representing the Company's
gross profit. Revenue derived from this type of contract totaled 86% of revenue
for fiscal year 1997 and is recognized on the basis of reimbursable costs
incurred plus a pro rata portion of fees earned.
Revenue on time-and-materials contracts totaled 6% of revenue for fiscal
year 1997 and is recognized on the basis of direct-labor hours and reimbursable
materials costs incurred. Revenue on fixed-price contracts totaled 8% of revenue
for fiscal year 1997 and is recorded on the percentage-of-completion method
based upon costs incurred in relation to total estimated costs. Losses are
recorded in full when determinable.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance,
repairs, and improvements which do not materially extend the useful lives of
assets are expensed as incurred. The Company depreciates its property and
equipment using primarily the straight-line method based on estimated useful
lives of assets. Certain computer equipment is depreciated using accelerated
methods. Leasehold improvements are amortized over the shorter of the terms of
the respective leases or the estimated useful lives. Estimated useful lives of
property and equipment and leasehold improvements are as follows:
<TABLE>
<S> <C>
Computer equipment.......................... 3-5 years
Furniture and equipment..................... 4-5 years
Lesser of lease term or useful
Leasehold improvements...................... life
Real property............................... 30 years
</TABLE>
INCOME TAXES
The accompanying consolidated financial statements are presented on the
accrual basis of accounting, which recognizes income when earned and recognizes
costs and expenses when incurred, as required by generally accepted accounting
principles. However, for tax reporting purposes, the Company computes its
F-47
<PAGE>
TECHMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income or loss on the cash basis, wherein income is recognized when collected in
cash, and costs and expenses are recognized as cash is paid.
The Company has elected S corporation status for federal and certain state
income tax purposes. Under such election, the taxable income or loss of the
Company is apportioned among the Company's stockholders, based upon their
percentage of ownership during the year, and included in the individual tax
returns of the stockholders. Therefore, the accompanying consolidated statement
of earnings shows no provision by the Company for federal income taxes. For the
year ended June 30, 1997, the Company has recorded a provision of $29,278, for
income taxes, in certain states that do not recognize the Company's S status or
in which the Company chose not to elect S status.
The Company intends to terminate its S election effective January 1, 1998.
If the Company had elected to terminate the S status at June 30, 1997, the
Company would have recorded a one-time charge against income from continuing
operations of approximately $4,000,000. The charge will reflect a deferred
income tax liability arising as a result of cumulative differences between
financial statement and income tax reporting, principally relating to the
adjustments from the accrual method to the cash method of accounting.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenue and expenses during the reporting period. Loss on discontinued
operations of the subsidiary (see Note C) includes estimated costs to dispose of
the subsidiary during the phase-out period, net of any income tax benefits
resulting from the discontinuance of operations. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1997, the Company's carrying value of financial instruments
approximated fair value. Carrying amounts for accounts receivable, notes
receivable, accounts payable, line of credit and deferred income taxes
approximate fair value because of the short maturity of such instruments.
NOTE B--UNBILLED ACCOUNTS RECEIVABLE
Unbilled accounts receivable represent revenue recognized for work performed
but not billed at year-end. Unbilled amounts at June 30, 1997, are expected to
be billed in 1997 and thereafter. Amounts
F-48
<PAGE>
TECHMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE B--UNBILLED ACCOUNTS RECEIVABLE (CONTINUED)
expected to be collected after 1997 have been classified as current assets in
accordance with industry practice. Unbilled amounts consist of the following as
of June 30, 1997:
<TABLE>
<S> <C>
Billings in progress............................................ $1,324,107
Fee retentions.................................................. 974,222
Costs in excess of provisional billing rates.................... 450,284
Costs incurred and fees recorded on existing contracts prior to
execution of contract modification............................ 1,248,994
---------
3,997,607
Less allowance for doubtful accounts............................ (711,799)
---------
$3,285,808
---------
---------
</TABLE>
Certain unbilled receivables are not billable until a review of costs
incurred is performed by the Defense Contract Audit Agency (DCAA). Amounts
included in unbilled accounts receivable expected to be collected within one
year totaled $2,573,101 at June 30, 1997.
NOTE C--INVESTMENT IN AFFILIATE
In May 1995, the Company formed TECHMATICS Information Alliance and
Communications (TIAC), a Virginia limited liability company. TIAC provides
customers with information services, principally related to the Internet. The
Company invested $100,000 in the purchase of a 78% interest in TIAC, and agreed
to advance working capital funds as required by TIAC. In accordance with
generally accepted accounting principles, a minority interest in TIAC is not
recorded, as losses related to the minority interest exceed its equity in TIAC.
On July 1, 1997, the Company adopted a formal plan to discontinue the
operations of TIAC. On August 31, 1997, the Company disposed of TIAC. Assets
disposed of consisted primarily of accounts receivable; supplies; and property,
plant and equipment.
As of August 8, 1997, the operations are in the process of termination.
Certain assets were sold for cash to an unrelated third party. The remaining
assets and liabilities are being liquidated in the normal course of business.
The Company had guaranteed a lease for space in which TIAC conducted its
operations. The remaining obligations under the original terms of the lease are
approximately $478,000, payable monthly through February 28, 2001. The Company
has entered into a sublease for the space and has recognized a loss of
approximately $118,000, representing the difference between the Company's
obligation on the lease and the estimated future income from the sublease.
Additionally, in connection with the discontinuation of operations and
resulting employment terminations, the Company has accrued $155,000 of severance
pay.
The loss arising from the discontinued operations is $786,596 (net of income
tax benefit of $9,385) representing the loss on sale and liquidation of assets
of TIAC, and a provision of $149,459 for operating losses during the phase-out
period from July 1, 1997, through August 31, 1997.
F-49
<PAGE>
TECHMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE C--INVESTMENT IN AFFILIATE (CONTINUED)
Operating results of TIAC for the year ended June 30, 1997, are shown
separately in the accompanying statements of earnings.
Net sales of TIAC for 1997 were $812,239. The amounts are not included in
net sales in the accompanying income statements.
Assets and liabilities of TIAC consisted of the following at June 30, 1997:
<TABLE>
<S> <C>
Cash.............................................................. $ 63,147
Accounts receivable............................................... 264,366
Prepaids and other................................................ 56,882
Deferred tax benefit.............................................. 29,616
Net property, plant and equipment................................. 390,284
Other noncurrent assets........................................... 11,177
---------
Total assets.................................................. 815,472
---------
Accounts payable.................................................. 30,147
Accrued expenses.................................................. 20,102
Other noncurrent liabilities...................................... 56,899
---------
Total liabilities............................................. 107,148
---------
Net assets disposed of............................................ $ 708,324
---------
---------
</TABLE>
Assets are shown at their expected net realizable values; short-term notes
payable are shown at their face amounts.
Net assets to be disposed of, at expected net realizable values, have been
separately classified in the accompanying balance sheet at June 30, 1997.
F-50
<PAGE>
TECHMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE D--STOCKHOLDERS' EQUITY AND STOCK OPTIONS
STOCK OPTIONS
The Company has an employee stock option plan for key employees. The plan
was adopted in 1993, replacing a similar plan previously in effect since 1989.
Shares optioned under both the 1989 and 1993 plans are nonvoting common stock,
par value of $0.01 each. The 1993 plan provides for the issuance of a maximum of
1,300,000 shares. The Company values options at book value which approximates
market.
<TABLE>
<CAPTION>
SHARES UNDER EXERCISE
OPTION PRICE
------------- -------------
<S> <C> <C>
Balance, June 30, 1996.......................................... 467,190 $ 1.90 - 4.00
Granted....................................................... -- --
Exercised..................................................... (60,540) 1.90 - 1.90
Canceled...................................................... (33,200) 1.90 - 4.00
-------------
Balance, June 30, 1997.......................................... 373,450 $ 2.59 - 4.00
------------- -------------
------------- -------------
</TABLE>
As of June 30, 1997, 140,330 options are exercisable.
STOCK REPURCHASE AGREEMENT
Common stock is subject to a stock repurchase agreement whereby the Company
has the right of first refusal for any stock offered for sale by a stockholder
or upon termination of employment or death of a stockholder.
NOTE E--LINE OF CREDIT AND BANKING ARRANGEMENTS
The Company maintains a line of credit for borrowings of up to $8,000,000.
Principal is payable upon demand and interest is calculated using the 30-day
LIBOR rate plus 225 basis points. The LIBOR rate was 7.94% at June 30, 1997.
Borrowings are collateralized by accounts receivable. As of June 30, 1997, the
Company had drawn $1,526,800 on the line of credit, net of repayments.
The Company's principal disbursing accounts are maintained on a zero-balance
basis, wherein the bank invests any balances on hand daily in short-term
securities. In the event that checks presented for payment exceed available
balances, the bank advances necessary funds pursuant to the line-of-credit
agreement. As of June 30, 1997 the Company had issued checks in the aggregate
amounts of approximately $1,446,000 which amounts are classified as accounts
payable in the accompanying consolidated balance sheets.
F-51
<PAGE>
TECHMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE F--ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 1997:
<TABLE>
<S> <C>
Salaries and related expenses................................... $1,466,614
Accrued vacation................................................ 1,469,536
Accrued 401(k) contribution expenses............................ 281,456
Accrued subcontractor costs..................................... 664,700
Health claims................................................... 106,852
Deferred rent, current portion.................................. 5,000
Estimated expenses on disposal of discontinued operations....... 587,050
Other accrued expenses.......................................... 295,912
---------
$4,877,120
---------
---------
</TABLE>
NOTE G--COMMITMENTS AND CONTINGENCIES
CONTRACTS
Substantially all payments to the Company under cost-reimbursable contracts
and subcontracts are provisional reimbursements of claimed cost and the pro rata
portion of the fixed fee thereon. Eligibility of the costs for reimbursement is
subject to annual audits by the DCAA. Audits of fiscal years 1994 through 1996
have not been finalized, and the audit of fiscal year 1997 has not yet begun.
Management believes resolution of the audits will have no material effect
upon the financial position of the Company or the results of future operations.
LEASE COMMITMENTS
The Company is obligated as lessee under certain noncancelable operating
leases, primarily for office space required by its Northern Virginia
headquarters and principal operating locations.
Future minimum rent payments under the leases consist of the following:
<TABLE>
<CAPTION>
CONTINUING DISCONTINUED
YEAR ENDING JUNE 30, OPERATIONS OPERATIONS
- ----------------------------------------------------------------- ------------- ------------
<S> <C> <C>
1998............................................................. $ 3,288,378 $ 22,670
1999............................................................. 3,246,829 --
2000............................................................. 3,133,822 --
2001............................................................. 3,037,693 --
2002............................................................. 2,918,882 --
Thereafter....................................................... 153,001 --
------------- ------------
$ 15,778,605 $ 22,670
------------- ------------
------------- ------------
</TABLE>
The leases for office space allow for annual rent adjustments based on the
change in the U.S. Consumer Price Index and additional rent assessments as
specified in the lease terms.
F-52
<PAGE>
TECHMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE G--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company subleases part of its office space to a related party under a
sublease agreement. Rent expense totaled $2,742,228 for 1997.
NOTE H--BENEFIT PLANS
Eligible employees of the Company may participate in a 401(k) savings plan
whereby employees may elect to make contributions pursuant to a salary reduction
agreement upon meeting age and length-of-service requirements. The directors, at
their discretion, elected to contribute to the 401(k) savings plan approximately
$436,000 for the plan year ended December 31, 1996. The Company accrued a
liability of approximately $281,000 for the period from January 1, 1997, through
June 30, 1997.
The Company has adopted a deferred compensation plan which provides
retirement and death benefits to certain officers of the Company. The plan is
funded by split-dollar life insurance policies for which the Company makes the
payments. In return, the officer, who is the owner of the policy, assigns
certain rights in the policy to secure the payments made by the Company, and the
Company is to receive a return of its funds before other benefits are paid.
Accordingly, the Company has recorded deposits of $1,115,000 at June 30, 1997.
The Company expects to pay out the amount of the deposits, when returned by
the insurance company in the future, to the officers covered as deferred
compensation, and intends to fund the plan for the required number of years. In
the event the Company were to discontinue funding the plan, some or all the
deposit may not be realized, depending on the cash surrender value of the
policies. The cash surrender value of the policies at June 30, 1997, was
$664,800.
The plan premium paid by the Company is recorded as a deposit with a
corresponding deferred compensation liability recorded at the present value of
the future benefits to be paid by the Company. In computing the present value of
the future benefits, the discount rate used is equal to the interest rate as
determined by the Secretary of the Treasury at fiscal year-end. At the end of
the plan period, the aggregate amount accrued will be equal to the present value
of the benefits expected to be provided to the employees.
The plan premiums of $228,000 were paid for the year ended June 30, 1997.
The deferred compensation liability accrued was $1,115,000 for the year ended
June 30, 1997.
NOTE I--RELATED PARTY TRANSACTIONS
The Company leases office space to a corporation, the owner of which is a
director of the Company. Total lease payments received under the lease amounted
to approximately $44,000 in 1997. Sublease income received by the Company is
recorded as a reduction to rent expense. The Company also has various contracts
and subcontracts with the same corporation. Costs paid to the related party
totaled approximately $372,200 in 1997.
The Company has a computer purchase program under which it makes
noninterest-bearing loans between $500 and $3,000 to employees for the purchase
of computer equipment and related items. The loans are repayable through payroll
deduction over a maximum of three years. As of June 30, 1997, aggregate
outstanding balances of such loans totaled approximately $231,600. The amount
currently due is included in "notes receivable from employees" and the long-term
portion is included in "other assets" in the accompanying balance sheet.
F-53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
TECHMATICS, Inc.:
We have audited the accompanying consolidated balance sheets of TECHMATICS,
Inc. (a Virginia corporation), and subsidiary as of June 30, 1996 and 1995, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TECHMATICS, Inc., and
subsidiary as of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
August 6, 1996 (except with respect to the matter discussed in
Note 10, as to which the date is July 1, 1997)
F-54
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................. $ 94,363 $ 62,254
Investments...................................................................... 2,351,093 --
Accounts receivable-
Billed......................................................................... 12,802,214 15,265,709
Unbilled (Note 2).............................................................. 842,834 1,431,288
Prepaid expenses and other....................................................... 1,003,712 434,867
Notes receivable from employees (Note 9)......................................... 106,536 127,565
------------- -------------
Total current assets......................................................... 17,200,752 17,321,683
------------- -------------
PROPERTY AND EQUIPMENT:
Computer equipment............................................................... 2,846,234 2,372,709
Furniture and equipment.......................................................... 1,351,250 1,197,900
Real property.................................................................... 155,517 155,517
Leasehold improvements........................................................... 172,102 163,809
Automobiles...................................................................... 39,028 --
------------- -------------
Total cost................................................................... 4,564,131 3,889,935
Less- Accumulated depreciation and amortization.................................. (2,986,337) (2,117,093)
------------- -------------
Net property and equipment................................................... 1,577,794 1,772,842
------------- -------------
OTHER ASSETS....................................................................... 1,335,238 1,132,242
Net assets of discontinued operations (Note 10).................................... 654,926 --
------------- -------------
TOTAL ASSETS....................................................................... $ 20,768,710 $ 20,226,767
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 2,261,477 $ 2,740,239
Accrued expenses (Note 4)........................................................ 3,786,013 1,874,834
Line of credit (Note 5).......................................................... -- 1,260,000
Deferred revenue................................................................. -- 21,104
Deferred state income taxes...................................................... 67,122 --
------------- -------------
Total current liabilities.................................................... 6,114,612 5,896,177
------------- -------------
Deferred state income taxes........................................................ 106,372 162,940
Deferred rent, net of current portion.............................................. 58,205 131,615
Other long-term liabilities........................................................ 894,792 690,329
------------- -------------
Total liabilities............................................................ 7,173,981 6,881,061
------------- -------------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY:
Common stock (Note 7):
Class A, voting, $0.01 par value, 2,500,000 shares authorized, 1,463,334 and
1,530,000 shares issued and outstanding, respectively........................ 14,633 15,300
Class A, nonvoting, $0.01 par value, 7,500,000 shares authorized, 616,526 and
574,186 shares issued and outstanding, respectively.......................... 6,165 5,742
Additional paid-in capital..................................................... 384,630 587,701
Retained earnings.............................................................. 13,189,301 12,736,963
------------- -------------
Total stockholders' equity................................................... 13,594,729 13,345,706
------------- -------------
Total liabilities and stockholders' equity................................... $ 20,768,710 $ 20,226,767
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-55
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Contract revenues.................................................................. $ 47,022,093 $ 45,235,967
Contract and administrative costs.................................................. 44,652,528 42,951,736
------------- -------------
Income from continuing operations............................................ 2,369,565 2,284,231
Interest income, net of interest expense of $8,504 and $1,486 in 1996 and 1995..... 187,052 188,250
Other expenses..................................................................... -- (40,955)
------------- -------------
Income from continuing operations before state income taxes.................. 2,556,617 2,431,526
Provision for state income taxes, deferred......................................... (35,797) (32,484)
------------- -------------
Net income from continuing operations........................................ $ 2,520,820 $ 2,399,042
Discontinued Operations (Note 10)
Loss from operations of TIAC, net of income tax benefit of $25,243........... (2,068,482) --
------------- -------------
Net income......................................................................... $ 452,338 $ 2,399,042
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-56
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------
VOTING NONVOTING ADDITIONAL
--------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- --------- --------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994.............. 1,530,000 $ 15,300 455,356 $ 4,554 $ 505,780 $ 10,913,238 $ 11,438,872
Exercise of stock options......... -- -- 127,780 1,278 91,402 -- 92,680
Stock repurchased and canceled.... -- -- (8,950) (90) (9,481) (18,085) (27,656)
Dividends paid.................... -- -- -- -- -- (557,232) (557,232)
Net income........................ -- -- -- -- -- 2,399,042 2,399,042
---------- --------- --------- --------- ---------- ------------- -------------
Balance, June 30, 1995.............. 1,530,000 15,300 574,186 5,742 587,701 12,736,963 13,345,706
---------- --------- --------- --------- ---------- ------------- -------------
Exercise of stock options......... -- -- 51,040 510 65,878 -- 66,388
Stock repurchased and canceled.... (66,666) (667) (8,700) (87) (268,949) -- (269,703)
Net income........................ -- -- -- -- -- 452,338 452,338
---------- --------- --------- --------- ---------- ------------- -------------
Balance, June 30, 1996.............. 1,463,334 $ 14,633 616,526 $ 6,165 $ 384,630 $ 13,189,301 $ 13,594,729
---------- --------- --------- --------- ---------- ------------- -------------
---------- --------- --------- --------- ---------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-57
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations............................................. $ 2,546,063 $ --
Loss from operations of discontinued subsidiary, TIAC (Note 10)................... (2,093,725) --
------------- -------------
Net income........................................................................ 452,338 2,399,042
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization................................................. 875,277 687,961
Provision for deferred state income taxes..................................... 10,554 32,484
Loss on disposal of property and equipment.................................... 1,691 --
Decrease (increase) in accounts receivable.................................... 3,051,949 (2,431,156)
Increase in prepaid expenses and other current assets......................... (697,625) (44,625)
Increase in other assets...................................................... (84,188) (595,340)
Increase in net assets of discontinued operations............................. (601,277) --
Increase in accounts payable and accrued expenses............................. 1,499,896 257,563
Increase (decrease) in deferred rent.......................................... 58,205 (90,857)
(Decrease) increase in deferred revenue....................................... (21,104) 21,104
Increase in other long-term liabilities....................................... 72,849 226,544
------------- -------------
Net cash provided by operating activities................................... 4,618,565 462,720
------------- -------------
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................... $ (733,879) $ (1,150,789)
Repayments (loans) on note receivable............................................. 7,486 (30,677)
Purchases of investments, net..................................................... (2,351,093) --
------------- -------------
Net cash used in investing activities....................................... $ (3,077,486) $ (1,181,466)
------------- -------------
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit.................................. ($ 1,260,000) 1,260,000
Proceeds from issuance of common stock............................................ 66,388 92,680
Repurchase of common stock........................................................ (269,703) (27,656)
Dividends paid to shareholders.................................................... -- (557,232)
------------- -------------
Net cash (used in) provided by financing activities......................... $ (1,463,315) $ 767,792
------------- -------------
------------- -------------
NET INCREASE IN CASH................................................................ 77,764 49,046
CASH, BEGINNING OF YEAR............................................................. 16,599 13,208
------------- -------------
CASH, END OF YEAR................................................................... $ 94,363 $ 62,254
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Income taxes.................................................................... $ -- $ 628
------------- -------------
------------- -------------
Interest........................................................................ $ 8,504 $ 1,486
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-58
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
TECHMATICS, Inc. (the "Company"), was incorporated on March 15, 1982, under
the laws of the Commonwealth of Virginia for the purpose of engaging in a
consulting business. The Company specializes in engineering, management and
information technology services for the United States Navy and other customers.
REVENUES FROM CONTRACTS
The preponderance of the Company's revenue is generated from cost-plus fixed
fee contracts. This type of contract provides for the Company to perform
agreed-upon numbers of labor hours within specified categories and skill levels.
In return, the Company receives reimbursement of its direct and indirect costs
of contract performance, within stipulated limitations, plus a negotiated fixed
fee that represents the Company's gross profit. Revenue derived from this type
of contract, 89 and 91 percent of total revenue for fiscal years 1996 and 1995,
respectively, is recognized on the basis of reimbursable costs incurred plus a
pro rata portion of fees earned.
Revenue on time-and-material contracts (9 and 8 percent of total revenue for
fiscal years 1996 and 1995, respectively) is recognized on the basis of
direct-labor hours and reimbursable materials costs incurred. Revenue on
fixed-price contracts (2 and 1 percent of total revenue for fiscal years 1996
and 1995, respectively) is recorded on the percentage-of-completion method based
upon costs incurred in relation to total estimated costs. Losses are recorded in
full when they become determinable.
In 1995, one of the Company's U.S. government contracts represented 11
percent of total revenues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance,
repairs and improvements which do not materially extend the useful lives of the
assets are expensed as incurred. The Company depreciates its property and
equipment primarily using the straight-line method based on the estimated useful
lives of the assets. Certain computer equipment is depreciated using accelerated
methods. Leasehold improvements are amortized over the shorter of the terms of
the respective leases or the estimated useful lives. Estimated useful lives of
property and equipment and leasehold improvements are as follows:
<TABLE>
<S> <C>
Computer equipment.................. 3-5 years
Furniture and equipment............. 4-5 years
Lesser of lease term or useful
Leasehold improvements.............. life
Real property....................... 30 years
Automobiles......................... 5 years
</TABLE>
INCOME TAXES
The accompanying financial statements are presented on the accrual basis of
accounting. This method recognizes income when earned and recognizes costs and
expenses when incurred, as is required by generally accepted accounting
principles. For tax reporting purposes, however, the Company computes its income
or loss on the cash basis, wherein income is recognized when collected in cash
and costs and expenses are recognized as cash is paid therefor.
F-59
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996 AND 1995
The Company has elected to be treated as a "Subchapter S" corporation for
Federal and state income tax purposes. Under this election, the taxable income
or loss of the Company for fiscal year is apportioned among the Company's
stockholders, based upon their percentage ownership during the year, and
included in the individual tax returns of the stockholders. For this reason, the
accompanying Consolidated Statement of Income shows no provision by the Company
for Federal income taxes. For fiscal years 1996 and 1995, the Company has
recorded a $10,554 and $32,484 provision, respectively, for state income taxes,
because certain states do not recognize the Company's "Subchapter S" corporation
status.
Differences existing between net income for financial reporting purposes and
for income tax purposes are caused primarily by the use of the cash versus
accrual method of accounting and accelerated depreciation methods for tax
purposes.
SHORT-TERM INVESTMENTS
Short-term investments consist primarily of U.S. Treasury Bills and are
stated at market which was identical to cost at June 30, 1996. In accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the investments are
classified as available-for-sale at year-end. There were no significant realized
or unrealized gains or losses on these investments during the year.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1996 and 1995, the Company's carrying value of financial
instruments approximated fair value. Carrying amounts for accounts receivable,
notes receivable, accounts payable, line of credit and deferred income taxes
approximated fair value due to the short maturity of these instruments.
F-60
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996 AND 1995
2. UNBILLED ACCOUNTS RECEIVABLE:
Unbilled accounts receivable represent revenues recognized for work
performed but not billed at year-end. The balances consist of the following as
of June 30:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Billings in progress.............................................. $ 415,753 $ 900,580
Fee retentions.................................................... 715,710 799,728
Costs in excess of provisional billing rates...................... 362,564 175,980
Costs incurred and fees recorded on existing contracts prior to
execution of contract modifications............................. 60,606 129,740
------------ ------------
1,554,633 2,006,028
Less- Reserve for uncollectible accounts.......................... (711,799) (574,740)
------------ ------------
Total....................................................... $ 842,834 $ 1,431,288
------------ ------------
------------ ------------
</TABLE>
Certain unbilled receivables are not billable until a review of costs
incurred is performed by the Defense Contract Audit Agency (the "DCAA," see Note
6). The amounts included in unbilled accounts receivable which are expected to
be collected within a year equal $476,359 and $1,030,320 at June 30, 1996 and
1995, respectively.
3. INVESTMENT IN AFFILIATE:
In May 1995, the Company formed a Virginia Limited Liability Company named
"Techmatics Information Alliance and Communications, LLC" (the "LLC"). The LLC
was formed to provide its customers with information services, principally
related to the Internet. The Company invested $100,000 in the purchase of a 78%
interest in the LLC and agreed to advance working capital funds as required by
the LLC. In accordance with generally accepted accounting standards, a minority
interest in the LLC is not recorded, as losses related to the minority interest
exceeded its equity in the LLC. See Note 10 for discontinued operations
discussion.
4. ACCRUED EXPENSES:
Accrued expenses consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Salaries and related expenses..................................... $ 1,396,828 $ 90,804
Accrued vacation.................................................. 1,324,685 1,087,097
Accrued 401(k) contribution expenses.............................. 246,467 257,359
Health claims..................................................... 631,019 290,081
Deferred rent, current portion.................................... 60,000 60,000
Other accrual expenses............................................ 127,104 89,493
------------ ------------
$ 3,786,013 $ 1,874,834
------------ ------------
------------ ------------
</TABLE>
F-61
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996 AND 1995
5. LINE OF CREDIT AND BANKING ARRANGEMENTS:
The Company has a $8,000,000 bank line-of-credit agreement. The principal is
payable upon demand and interest is calculated using the 30 day LIBOR rate plus
225 basis points and are collateralized by accounts receivable. As of June 30,
1996, the Company had not drawn on the line-of-credit.
The Company's principal disbursing accounts are maintained on a zero-balance
basis, wherein the bank invests any balances on hand at the close of a business
day in short-term securities. In the event that checks presented for payment
exceed available balances, the bank advances necessary funds pursuant to the
line-of-credit agreement described in the preceding paragraph. As of June 30,
1996, the Company had issued checks in the aggregate amount of approximately
$1,676,000, which had not been presented for payment; the corresponding amount
as of June 30, 1995, was $2,218,000. These amounts are classified as accounts
payable in the accompanying balance sheet for each of the respective dates.
6. COMMITMENTS AND CONTINGENCIES:
CONTRACTS
Substantially all payments to the Company under cost-reimbursable contracts
and subcontracts are provisional reimbursements of claimed cost and the pro rata
portion of fixed fee thereon. Eligibility of these costs for reimbursement is
subject to annual audits by the DCAA. The audits through June 30, 1989, have
been finalized. Audit procedures for fiscal years 1990 through 1993 have been
completed by the DCAA and the results thereof are in the process of negotiation
and final settlement between the Company and the government. Audits of fiscal
years 1994 through 1996 costs have not as yet begun.
Management believes that resolution of these audits will not have a material
effect upon the financial position of the Company or the results of future
operations.
LEASE COMMITMENTS
The Company is obligated as lessee under certain noncancelable operating
leases, primarily for the office space required by its Northern Virginia
headquarters and principal operating locations.
Future minimum rent payments required under such leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
<S> <C>
1997........................................................................... $ 2,409,539
1998........................................................................... 2,160,098
1999........................................................................... 2,132,118
2000........................................................................... 2,125,829
2001........................................................................... 2,106,061
Thereafter..................................................................... 1,953,392
-------------
$ 12,887,037
-------------
-------------
</TABLE>
The leases for office space allow for annual rent adjustments based on the
change in the U.S. Consumer Price Index and additional rent assessments as
specified in the lease terms.
The Company subleases part of its office space to a related party under a
sublease agreement. See Note 9 for sublease income received by the Company for
1996 and 1995.
F-62
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996 AND 1995
Rent expense for all operating leases, net of sublease payments, totaled
$2,442,844 and $2,338,829 in 1996 and 1995, respectively.
7. STOCKHOLDERS' EQUITY AND STOCK OPTIONS:
STOCK OPTIONS
The Company has an employee stock option plan for key employees. It was
adopted in 1993, replacing a similar plan that had previously been in effect
since 1989. The shares optioned under both the 1989 and the 1993 plan are
nonvoting common stock, par value of $0.01 each. The 1993 plan provides for the
issuance of a maximum of 1,300,000 shares.
<TABLE>
<CAPTION>
SHARES UNDER EXERCISE
OPTION PRICE
------------- -----------
<S> <C> <C>
Balance, June 30, 1994................................................................ 343,980 $ 0.10-2.85
Granted............................................................................. 179,800 3.09-3.40
Exercised........................................................................... (127,780) 0.10-1.90
Canceled............................................................................ (3,020) 2.59-3.09
------------- -----------
Balance, June 30, 1995................................................................ 392,980 $ 1.35-3.40
Granted............................................................................. 151,000 3.63-4.00
Exercised........................................................................... (51,040) 1.35-1.90
Canceled............................................................................ (25,750) 2.59-3.63
------------- -----------
Balance, June 30, 1996................................................................ 467,190 $ 1.90-4.00
------------- -----------
------------- -----------
</TABLE>
As of June 30, 1996, 46,840 options under the plan are exercisable.
STOCK REPURCHASE AGREEMENT
Common stock is subject to a stock repurchase agreement, whereby the Company
has a right of first refusal for any stock offered for sale by a stockholder or
upon termination of employment or death of a stockholder. The Company will be
reimbursed for premiums paid for certain life insurance policies covering five
of its stockholders.
8. 401(K) SAVINGS PLAN:
Eligible employees of the Company may participate in a 401(k) savings plan,
whereby the employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length-of-service requirements. The
directors, at their discretion, elected to contribute to the 401(k) savings plan
approximately $342,000 for the plan year ending December 31, 1995. The Company
accrued a liability of approximately $246,000 for the period from January 1,
1996 through June 30, 1996.
9. RELATED-PARTY TRANSACTIONS:
The Company leases office space to a corporation, the owner of which is a
director of the Company. Total lease payments received under this lease amounted
to approximately $55,000 in 1996 and 1995. Sublease income received by the
Company is recorded as a reduction to rent expense. The Company also
F-63
<PAGE>
TECHMATICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996 AND 1995
has various contracts and subcontracts with this same corporation. Costs paid to
this related party were approximately $225,370 and $736,000 in 1996 and 1995,
respectively.
The Company has a computer purchase program, under which it makes
noninterest bearing loans of between $500 and $3,000 to employees for the
purchase of computer equipment and related items. These loans are repayable
through payroll deduction over a maximum of three years. As of June 30, 1996,
the aggregate outstanding balance of such loans was approximately $207,000 and
at June 30, 1995, it was approximately $230,000. The amount currently due is
included in "notes receivable from employees" and the long-term portion is
included in "other assets" in the accompanying balance sheet.
10. SUBSEQUENT EVENT:
On July 1, 1997, the Company adopted a formal plan to discontinue the
operations of the LLC. The LLC is a provider of information services to
commercial customers (not governmental contractors) and constitutes a separate
business segment of the Company. Certain assets were sold for cash to an
unrelated party. Other assets were liquidated in the ordinary course of
business. Assets disposed of consisted primarily of accounts receivable,
supplies and equipment.
Net sales for the LLC for fiscal years 1996 and 1995 were approximately
$300,000 and $0, respectively. The accompanying consolidated statement of income
reflects the discontinued operations for fiscal year 1996 in order to be
comparable to the fiscal year 1997 presentation.
F-64
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Analysis & Technology, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Analysis &
Technology, Inc. and Subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of earnings, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Analysis &
Technology, Inc. and Subsidiaries as of March 31, 1999 and 1998 and the results
of their operations and their cash flows for each of the years in the three-year
period ended March 31, 1999 in conformity with generally accepted accounting
principles.
KPMG LLP
Providence, Rhode Island
April 30, 1999
F-65
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------
<S> <C> <C>
ASSETS 1999 1998
------------- -------------
Current assets:
Cash and cash equivalents........................................................ $ -- $ 953,677
Contract receivables (note 3).................................................... 28,776,154 25,637,041
Notes and other receivables...................................................... 1,014,563 665,497
Prepaid expenses................................................................. 1,319,468 831,928
------------- -------------
Total current assets........................................................... 31,110,185 28,088,143
------------- -------------
Property, buildings and equipment, net (notes 4 and 5)............................. 15,010,949 14,886,072
------------- -------------
Other assets:
Goodwill, net of accumulated amortization (note 4)............................... 17,042,357 15,401,697
Product development costs, net of accumulated amortization (note 4).............. 399,976 301,993
Deferred Compensation Plan investments (note 2).................................. 7,407,832 3,467,388
Notes receivable................................................................. 361,855 538,933
Deposits and other assets........................................................ 913,658 504,508
Deferred income taxes (note 6)................................................... 1,498,984 420,480
------------- -------------
27,624,662 20,634,999
------------- -------------
Total assets................................................................... $ 73,745,796 $ 63,609,214
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 5).................................. $ 345,338 $ 328,646
Accounts payable................................................................. 994,716 439,209
Accrued expenses (note 9)........................................................ 12,538,505 11,350,703
Dividends payable................................................................ -- 765,668
Deferred income taxes (note 6)................................................... 1,306,246 749,238
------------- -------------
Total current liabilities...................................................... 15,184,805 13,633,464
Long-term debt, excluding current installments (note 5)............................ 1,816,488 2,161,083
Other long-term liabilities (note 2)............................................... 8,523,091 3,467,513
------------- -------------
Total liabilities.............................................................. 25,524,384 19,262,060
------------- -------------
Commitments and contingencies (notes 3, 8, and 10)
Shareholders' equity (notes 7 and 8):
Common stock, $.083 stated value. Authorized 11,250,000 shares; issued and
outstanding 3,673,114 shares in 1999 and 3,614,537 shares in 1998.............. 306,093 301,212
Treasury stock held by deferred compensation plan, 45,867 shares and 0 shares in
1999 and 1998, respectively, at cost........................................... (459,229) --
Accumulated other comprehensive loss............................................. (8,592) --
Additional paid-in capital....................................................... 8,393,463 8,927,905
Retained earnings................................................................ 39,989,677 35,118,037
------------- -------------
Total shareholders' equity..................................................... 48,221,412 44,347,154
------------- -------------
Total liabilities and shareholders' equity..................................... $ 73,745,796 $ 63,609,214
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-66
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
-------------- -------------- --------------
Revenue......................................................... $ 170,354,893 $ 159,956,294 $ 142,547,174
Costs and expenses.............................................. 160,074,537 152,011,128 135,777,206
-------------- -------------- --------------
Operating earnings........................................ 10,280,356 7,945,166 6,769,968
-------------- -------------- --------------
Other expense (income):
Interest expense.............................................. 488,987 296,209 397,417
Interest income............................................... (138,803) (125,200) (77,803)
Equity in income of joint venture............................. -- (16,969) (90,445)
Gain on sale of joint venture................................. -- (1,591,483) --
Other, net.................................................... 1,179,470 1,038,798 728,281
-------------- -------------- --------------
1,529,654 (398,645) 957,450
-------------- -------------- --------------
Earnings before income taxes.............................. 8,750,702 8,343,811 5,812,518
Income taxes (note 6)........................................... 3,879,062 4,152,247 2,436,982
-------------- -------------- --------------
Net earnings................................................ $ 4,871,640 $ 4,191,564 $ 3,375,536
-------------- -------------- --------------
-------------- -------------- --------------
Basic earnings per common share............................. $ 1.34 $ 1.19 $ 0.96
-------------- -------------- --------------
-------------- -------------- --------------
Diluted earnings per common share........................... $ 1.20 $ 1.07 $ 0.93
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding (notes 2 and 7)
Basic......................................................... 3,633,115 3,530,006 3,499,742
-------------- -------------- --------------
-------------- -------------- --------------
Diluted....................................................... 4,023,837 3,849,242 3,609,210
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-67
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
---------------------- ADDITIONAL COMPREHENSIVE TOTAL
STATED PAID-IN RETAINED TREASURY EARNINGS SHAREHOLDERS'
SHARES VALUE CAPITAL EARNINGS STOCK (LOSS) EQUITY
---------- ---------- ------------ ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31,
1996................... 3,660,455 305,038 9,964,210 29,010,141 -- -- 39,279,389
Proceeds from sale of
common stock........... 46,776 3,898 290,912 -- -- -- 294,810
Repurchase and retirement
of common stock........ (263,550) (21,962) (2,297,238) -- -- -- (2,319,200)
Net earnings............. -- -- -- 3,375,536 -- -- 3,375,536
Tax benefit of stock
options exercised...... -- -- 51,502 -- -- -- 51,502
Cash dividends declared--
$.20 per share......... -- -- -- (693,536) -- -- (693,536)
---------- ---------- ------------ ------------- ----------- -------------- -------------
Balances at March 31,
1997................... 3,443,681 286,974 8,009,386 31,692,141 -- -- 39,988,501
Proceeds from sale of
common stock........... 263,806 21,984 1,651,832 -- -- -- 1,673,816
Repurchase and retirement
of common stock........ (92,950) (7,746) (1,329,812) -- -- -- (1,337,558)
Net earnings............. -- -- -- 4,191,564 -- -- 4,191,564
Tax benefit of stock
options exercised...... -- -- 596,499 -- -- -- 596,499
Cash dividends declared--
$.21 per share......... -- -- -- (765,668) -- -- (765,668)
---------- ---------- ------------ ------------- ----------- -------------- -------------
Balances at March 31,
1998................... 3,614,537 301,212 8,927,905 35,118,037 -- -- 44,347,154
Proceeds from sale of
common stock........... 101,477 8,456 437,968 -- -- -- 446,424
Repurchase and retirement
of common stock........ (42,900) (3,575) (832,365) -- -- -- (835,940)
Deferred compensation
plan transition
differential net of tax
benefit................ -- -- (398,700) -- -- -- (398,700)
Treasury stock held by
deferred compensation
plan................... -- -- -- -- (459,229) -- (459,229)
Net earnings............. -- -- -- 4,871,640 -- -- 4,871,640
Currency translation
adjustment............. -- -- -- -- -- (8,592) (8,592)
---------- ---------- ------------ ------------- ----------- -------------- -------------
Comprehensive earnings... -- -- -- 4,871,640 -- (8,592) 4,863,048
---------- ---------- ------------ ------------- ----------- -------------- -------------
Tax benefit of stock
options exercised...... -- -- 258,655 -- -- -- 258,655
---------- ---------- ------------ ------------- ----------- -------------- -------------
Balances at March 31,
1999................... 3,673,114 $ 306,093 $ 8,393,463 $ 39,989,677 $ (459,229) (8,592) $ 48,221,412
---------- ---------- ------------ ------------- ----------- -------------- -------------
---------- ---------- ------------ ------------- ----------- -------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-68
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
<S> <C> <C> <C>
1999 1998 1997
---------- ---------- ----------
Operating activities:
Net earnings.............................................................. $4,871,640 $4,191,564 $3,375,536
Adjustments to reconcile net earnings to net cash provided by continuing
operations:
Gain on sale of joint venture......................................... -- (1,591,483) --
Equity in income of joint venture..................................... -- (16,969) (90,445)
Write-off of product development costs................................ -- 280,555 --
Currency translation adjustment....................................... (8,592) -- --
Depreciation and amortization of property, buildings, and equipment... 2,337,947 2,379,912 2,528,929
Amortization of goodwill.............................................. 1,006,553 724,003 562,257
Amortization of product development costs............................. 174,773 162,447 113,908
Provision for deferred income taxes................................... (264,301) (537,216) (744,685)
Loss on sale of equipment............................................. 82,846 108,563 243,832
Gain on sale of marketable securities................................. -- -- (35,268)
Decrease (increase) in:
Contract, notes and other receivables............................... (3,311,101) 1,054,340 3,535,670
Prepaid expenses.................................................... (487,540) 405,847 858,565
Other assets........................................................ (868,870) (472,760) (526,977)
Increase (decrease) in:
Accounts payable and accrued expenses............................... 2,002,096 661,164 173,527
Other long-term liabilities......................................... 594,726 424,037 (486,839)
---------- ---------- ----------
Net cash provided by continuing operations.......................... 6,130,177 7,774,004 9,508,010
Net cash used for discontinued operations........................... -- -- (400,000)
---------- ---------- ----------
Net cash provided by operating activities........................... 6,130,177 7,774,004 9,108,010
---------- ---------- ----------
Investing activities:
Additions to property, buildings, and equipment........................... (2,507,668) (3,030,794) (2,327,142)
Product development costs................................................. (272,756) (130,668) (315,866)
Proceeds from sale of equipment........................................... 14,888 10,695 20,991
Proceeds from sale of joint venture....................................... -- 3,000,000 --
Proceeds from sale of marketable securities............................... -- -- 205,603
Acquisition of business units (net of cash acquired)...................... (2,835,234) (8,976,384) (4,932,757)
---------- ---------- ----------
Net cash used for investing activities.............................. (5,600,770) (9,127,151) (7,349,171)
---------- ---------- ----------
Financing activities:
Repayments of long-term borrowings........................................ (327,903) (312,956) (278,009)
Repurchase of common stock................................................ (835,940) (1,337,558) (2,319,200)
Proceeds from sale of common stock........................................ 446,427 1,673,816 294,810
Dividends paid............................................................ (765,668) (693,536) (658,881)
---------- ---------- ----------
Net cash used for financing activities.............................. (1,483,084) (670,234) (2,961,280)
---------- ---------- ----------
Decrease in cash and cash equivalents..................................... (953,677) (2,023,381) (1,202,441)
Cash and cash equivalents:
Beginning of year....................................................... 953,677 2,977,058 4,179,499
---------- ---------- ----------
End of year............................................................. $ -- $ 953,677 $2,977,058
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-69
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS, ACQUISITIONS, AND DIVESTITURES
Analysis & Technology, Inc. (A&T) initially provided tactical analysis to
the Office of Naval Research and sonar analysis to the Naval Underwater Systems
Center, now known as the Naval Undersea Warfare Center. During the past 30
years, A&T and Subsidiaries (the Company) have grown to provide system and
engineering technologies, technology-based training systems, and information
technologies for the military, civil government agencies, and private industry.
The Company has the following wholly-owned subsidiaries:
- Interactive Media Corp. (Interactive Media) which designs and implements
training programs for commercial and government customers;
- Analysis & Technology Australia Pty. Ltd. which provides training systems
and software development services in Australia. Analysis & Technology
International Corporation and Numerical Decisions, Inc. are subsidiaries
formed by the Company to perform international work but are not currently
operational.
The Company typically performs its Department of Defense services under cost
reimbursement contracts whereby the U.S. Government reimburses the Company for
contracted costs and pays a fee. In fiscal 1999, 1998, and 1997, the amount of
the Company's non-defense revenue was $34.6 million, $30.1 million, and $23.7
million, respectively.
The Company has made the following acquisitions accounted for as purchases:
On September 30, 1998, the Company acquired certain assets of Information
Technology Solutions, Inc. of Virginia for $775,000. Total goodwill of $598,000
was recorded in connection with this acquisition and is being amortized over 20
years.
On November 14, 1997, the Company acquired all of the stock of UP, Inc.
("UP") of Herndon, Virginia, for $5.3 million in cash plus related expenses. UP
provides technology-based interactive multimedia training to clients in
telecommunications, financial services and other industries. UP was merged into
Interactive Media upon acquisition. During fiscal 1999, under the terms of the
UP purchase agreement, the Company made a contingent payment to the former
owners of UP of $1.6 million. Goodwill totaling $6.3 million was recorded in
connection with this acquisition and is being amortized over 20 years. In
connection with the acquisition of UP, assets acquired and liabilities assumed
were as follows:
<TABLE>
<S> <C>
Assets: $2,457,020
Goodwill: $6,276,601
Liabilities: $1,702,566
</TABLE>
In fiscal 1998, the Company also acquired: certain assets of Command
Control, Inc. ("CCI") related to CCI's command, control, computers,
communications and intelligence ("C(4)I") service business; Interactive Media
Solutions, Inc. ("IAM"), a northern California-based interactive multimedia
training supplier; Cambridge Acoustical Associates, Inc. ("CAA") of Medford,
Massachusetts, which specializes in dynamics of submerged structures, acoustic
analysis, and passive and active noise control; and the assets and rights
relating to the overhauling and repairing surface and electronic warfare
business of Dalco Electronics Corporation, of Virginia Beach, Virginia. Total
goodwill of $2.0 million was recorded in connection with these acquisitions and
is being amortized over 20 years.
On July 26, 1996, the Company acquired all of the stock of Vector Research
Company, Inc. (Vector) of Rockville, Maryland for approximately $6.5 million in
cash plus related expenses and assumption of tax
F-70
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS, ACQUISITIONS, AND DIVESTITURES (CONTINUED)
liabilities. Vector provides engineering and technical services to U.S. Navy
customers. Goodwill totaling approximately $3.5 million was recorded in
connection with this acquisition and is being amortized over 20 years. In
connection with the acquisition of Vector Research Company, Inc., assets
acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Assets: $4,472,752
Goodwill: $3,480,220
Liabilities: $1,541,835
</TABLE>
On July 18, 1997, the company sold its interest in Automation Software,
Incorporated to its joint venture partner, Brown & Sharpe Manufacturing Co.
(NYSE:BNS) of Kingston, Rhode Island for $3.0 million. Net cash proceeds from
the sale were $1.8 million, and as a result of the company's investment of
approximately $1.4 million in the joint venture as of the date of the sale, a
net after-tax gain of $405 thousand was recognized in the quarter ended
September 30, 1997.
On March 8, 1999, the Company and Anteon Corporation (Anteon) entered into a
definitive merger agreement under which Anteon will acquire all the outstanding
shares of the Company for $26.00 a share and the Company will become a wholly
owned subsidiary of Anteon. Anteon, based in Fairfax, Virginia, is a privately
held corporation that provides information technology, systems engineering and
technology solutions to customers throughout the United States and
internationally. The transaction is conditioned on the approval of the holders
of two-thirds of the Company's common stock as well as on customary regulatory
approvals and other closing conditions. The merger is expected to close by June
30, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of the
Company:
- PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of A&T and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
- CASH EQUIVALENTS--For financial statement purposes, the Company considers
all investments with original maturities of three months or less at the
time of purchase to be cash equivalents.
- FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of the Company's
financial instruments including cash, accounts receivable, accounts
payable, accrued expenses and dividends payable approximate fair value due
to the short term nature of these instruments. The carrying value of notes
and other receivables and long term debt approximate fair value based on
the instruments' interest rate, terms, maturity date, and collateral, if
any, in comparison to the Company's incremental borrowing rate for similar
financial instruments.
- DEPRECIATION AND AMORTIZATION--Property, buildings, and equipment are
stated at cost. Depreciation of buildings and equipment is provided over
the estimated useful lives of the respective assets using the
straight-line method. Leasehold improvements are amortized over the
shorter of the lease term or the life of the asset.
- LONG-LIVED ASSETS--Long-lived assets and certain identifiable intangibles
are reviewed for impairment, based upon undiscounted future cash flows,
and appropriate losses are recognized whenever the carrying amount of an
asset may not be recovered in accordance with Statement of Financial
F-71
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
- GOODWILL--Goodwill relating to the Company's acquisitions represents the
excess of cost over the fair value of net assets acquired and is amortized
on a straight-line basis over periods ranging from two to thirty years.
Determination of the straight-line period is dependent on the nature of
the operations acquired. The Company evaluates the recoverability of
goodwill on a periodic basis to assure that changes in facts and
circumstances do not suggest that recoverability has been impaired. This
analysis relies on a number of factors, including operating results,
business plans, budgets, economic projections, and changes in management's
strategic direction or market emphasis. The test of recoverability for
goodwill is a comparison of the unamortized balance to expected cumulative
(undiscounted) operating income of the acquired business or enterprise
over the remaining portion of the amortization period. If the book value
of goodwill exceeds undiscounted future operating income, the writedown is
computed as the excess of the unamortized balance of the asset over the
present value of operating income discounted at the Company's weighted
average cost of capital over the remaining amortization period.
- PRODUCT DEVELOPMENT COSTS--Product development costs represent
expenditures for the development of software products that have been
capitalized in accordance with Statement of Financial Accounting Standards
No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED,
OR OTHERWISE MARKETED. Amortization is computed on an individual product
basis and is the greater of (a) the ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues for
that product or (b) the amount computed using the straight-line method
over the remaining economic useful life of the product. The Company is
currently using economic lives ranging from two to five years for all
capitalized product development costs. Amortization of product development
costs begins when the software product is available for general release to
customers.
- ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company applies APB Opinion
No. 25 and related Interpretations in accounting for its stock option
plans. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. Statement 123 addresses the accounting for the
cost of stock-based compensation, such as stock options, and permits
either expensing the cost of stock-based compensation over the vesting
period or disclosing in the financial statement footnotes what this
expense would have been. This cost would be measured at the grant date
based upon estimated fair values, using option pricing models. The Company
adopted the disclosure alternative of Statement 123.
- REVENUE RECOGNITION--Revenue from contract services is earned under
cost-reimbursement, time and material, and fixed-price contracts. Revenue
under cost-reimbursement contracts is recognized as costs are incurred and
under time and materials contracts as time is spent and as materials costs
are incurred. Revenue under fixed price contracts is recognized on the
percentage of completion basis. The majority of the Company's
cost-reimbursement contracts are either cost-plus-fixed-fee or
cost-plus-hourly-fee contracts. The contracts may either require the
Company to work on defined tasks or deliver a specific number of hours of
service. In either case, costs are reimbursed up to the contract-
authorized cost ceiling as they are incurred. If a contracted task has not
been completed or the specific number of hours of service has not been
delivered at the time the authorized cost is expended, the Company may be
required to complete the work or provide additional hours. The
F-72
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company will be reimbursed for the additional costs but may not receive an
additional fee or the fee may be prorated proportionately to the number of
hours actually provided. Revenue under fixed price contracts, including
applicable fees and estimated profits, is recorded on the percentage of
completion basis. If estimates indicate a probable ultimate loss on a
contract, provision is made immediately for the entire amount of the
estimated future loss. Profit and losses accrued include the cumulative
effect of changes in prior periods' cost estimates.
- EARNINGS PER SHARE--The Company calculates earnings per share (EPS) in
accordance with the provisions of Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE. Statement 128 requires the
disclosure of basic EPS, which is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding at the end of the period. Diluted EPS, which gives effect to
all dilutive potential common shares outstanding, is also required.
The following table reconciles net earnings to net earnings available to
common shareholders and basic weighted average number of shares to diluted
weighted average shares outstanding for the years ending March 31, 1999, 1998,
and 1997. Net earnings attributable to subsidiary stock options represents the
allocation of Integrated Performance Decisions (IPD), a former subsidiary of the
Company through August 1998, and Interactive Media Corp. (IMC) earnings to
holders of potentially dilutive options on IPD stock and IMC stock held by IPD
and IMC employees (see footnote 7).
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average shares outstanding..................................... 3,633,115 3,530,006 3,499,742
Net effect of dilutive stock options based on the treasury stock method
using the average market price........................................ 390,722 319,236 109,468
------------ ------------ ------------
Total................................................................... 4,023,837 3,849,242 3,609,210
------------ ------------ ------------
------------ ------------ ------------
Net earnings............................................................ $ 4,871,640 $ 4,191,564 $ 3,375,536
Net effect of earnings attributable to subsidiary stock options......... (42,708) (85,050) (33,407)
------------ ------------ ------------
Net earnings available to common shareholders........................... $ 4,828,932 $ 4,106,514 $ 3,342,129
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Options to purchase 15,000, 1,000 and 500 shares of common stock at $21.06,
$21.88 and $22.00, respectively, per share were outstanding during fiscal 1999
but were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of common shares.
- DEFERRED COMPENSATION PLAN--The Company maintains a deferred compensation
plan for certain officers, directors, and salaried employees. The plan is
funded primarily through employee pre-tax contributions. The participants
in the plan bear the risk of market value fluctuations of the underlying
assets.
During the year ended March 31, 1999, the Company adopted the provisions of
the Emerging Issues Task Force Issue 97-14, ACCOUNTING FOR DEFERRED COMPENSATION
ARRANGEMENTS WHERE AMOUNTS EARNED ARE HELD IN A RABBI TRUST AND INVESTED. EITF
97-14 requires deferred compensation plan sponsors to consolidate the accounts
of the deferred compensation plan with the accounts of the Company and to
account for the assets and liabilities of the deferred compensation plan in
accordance with other relevant accounting pronouncements. Accordingly, the
company has recorded all non-employer debt and equity
F-73
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities of the deferred compensation plan in the accompanying March 31, 1999
consolidated balance sheet at fair value, in accordance with Statement of
Financial Accounting Standards Statement No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. A&T common stock owned by the
deferred compensation plan has been recorded as treasury stock at its historical
cost, with the difference between historical cost and fair value as of the
implementation date of EITF 97-14 recorded as a transition differential within
additional paid-in capital, in accordance with EITF 97-14. The deferred
compensation liability is recorded at an amount equal to the fair value of all
assets held by the deferred compensation plan.
Investment securities held by the deferred compensation plan at March 31,
1999 consist of A&T's common stock and other investments, and are classified as
trading securities. Trading securities are bought and held principally for the
purpose of selling them in the near term. Trading securities are recorded at
fair value in the consolidated financial statements, with all unrealized holding
gains and losses recorded currently in earnings.
- 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 amounts reported in the
financial statements and accompanying notes. Actual results could differ
from reported results using those estimates.
(3) CONTRACT RECEIVABLES
Contract receivables are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
U.S. Government Customers:
Amounts due currently--prime contractor........................................ $ 12,904,485 $ 10,439,279
Amounts due currently--subcontractor........................................... 8,729,701 7,719,819
Retainage...................................................................... 848,303 740,043
------------- -------------
22,482,489 18,899,141
------------- -------------
Commercial customers:
Amounts due currently.......................................................... 4,493,374 4,950,970
------------- -------------
Unbilled contracts in process:
Fixed-price contracts in progress, net of progress billings.................... 320,902 642,060
Revenues recorded on work performed pursuant to customer authorization but
prior to execution of contractual documents or modifications................. 1,479,389 1,144,870
------------- -------------
1,800,291 1,786,930
------------- -------------
$ 28,776,154 $ 25,637,041
------------- -------------
------------- -------------
</TABLE>
The Government retains a portion of the fee earned by the Company
(retainage) until contract completion and final audit by the Defense Contract
Audit Agency (DCAA). It is estimated that approximately $386,000 of retainage at
March 31, 1999 will be collected within one year; the remainder will be
collected in later years as DCAA completes its audits.
F-74
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) CONTRACT RECEIVABLES (CONTINUED)
All unbilled contract receivables, net of retainage, are expected to be
billed and collected within one year.
(4) NON-CURRENT ASSETS
A summary of property, buildings, and equipment follows:
<TABLE>
<CAPTION>
USEFUL LIFE 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Land............................................ -- $ 595,869 $ 376,839
Buildings....................................... 31 years 11,525,027 11,554,841
Equipment....................................... 3-12 years 23,374,591 21,780,638
Leasehold improvements.......................... 1-5 years 3,000,134 2,510,210
------------- -------------
38,495,621 36,222,528
Less accumulated depreciation and
amortization.................................. (23,484,672) (21,336,456)
------------- -------------
$ 15,010,949 $ 14,886,072
------------- -------------
------------- -------------
</TABLE>
Goodwill as of March 31, 1999 and 1998 was $17,042,357 and $15,401,697, net
of accumulated amortization of $4,297,031 and $3,290,478, respectively. The
amount of goodwill added in fiscal 1999 and 1998 was $2,647,213 and $6,662,112,
respectively. Amortization expense was $1,006,553 in fiscal 1999, $724,003 in
fiscal 1998, and $562,257 in fiscal 1997.
Product development costs at March 31, 1999 and 1998 were $399,976 and
$301,993, net of accumulated amortization of $636,592 and $461,819,
respectively. The amount of product development costs capitalized was $272,756
in fiscal 1999, and $130,668 in fiscal 1998. Amortization expense was $174,773
in fiscal 1999, $162,447 in fiscal 1998, and $113,908 in fiscal 1997. In
addition, previously capitalized costs totaling $280,555 were written off in
fiscal 1998.
F-75
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Mortgage payable to Fleet Bank bearing interest at 7.97%, due in monthly installments
of principal of $11,500 plus associated interest through September1, 2001, secured
by certain land and buildings with a depreciated cost of $2,730,846................. $ 353,869 $ 491,865
Mortgage payable to Fleet Bank bearing interest at 8.29%, due in monthly installments
of principal and interest of $20,048 through January 1, 2007, secured by certain
land and buildings with a depreciated cost of $2,468,231............................ 1,487,327 1,597,058
Mortgage payable to Chelsea Groton Bank bearing interest at 9.25%, due in monthly
installments of principal and interest of $4,477 through March 2004, secured by
certain land and buildings.......................................................... 200,067 233,588
Small Business Administration loan bearing interest at 8.5%, due in monthly
installments of principal and interest of $4,923 through May 2001................... 120,563 167,218
------------ ------------
Total long-term debt.............................................................. 2,161,826 2,489,729
Less current installments of long-term debt........................................... 345,338 328,646
------------ ------------
Total long-term debt, excluding current installments.............................. $ 1,816,488 $ 2,161,083
------------ ------------
------------ ------------
</TABLE>
The Company has a $20,000,000 revolving credit and term loan agreement that
expires on June 30, 2000. Amounts drawn against the line of credit may be
converted into a term loan at the Company's discretion at any time prior to the
expiration of the loan agreement. If converted, the term loan would be payable
in 20 substantially equal quarterly installments. The alternate rates of
interest for the term loan from which the Company can choose are the bank's base
rate, the bank's certificate of deposit rate plus 1%, or LIBOR plus 3/4%. There
is a commitment fee of 1/2% per annum on the average daily balance of the unused
portion of the first $5,000,000 of the commitment and 1/4% per annum on the
remaining unused portion of the commitment, payable quarterly. As of March 31,
1999 and 1998 the Company did not have any funds borrowed under its revolving
credit agreement.
The revolving credit and term loan agreement places certain restrictions on
encumbering the Company's assets, incurring additional debt, and disposing of
any significant assets. It also requires that the Company maintain at least
$10,000,000 in working capital (excluding deferred income taxes), net worth of
at least $42,000,000, a debt-to-net-worth ratio of less than 2.5 to 1.0, an
interest coverage ratio of not less than two times interest paid or accrued, and
a debt service ratio of not less than 1.2 to 1.0. As of March 31, 1999, the
Company was in compliance with these covenants.
Under current agreements, principal payments due on long-term debt during
each of the five fiscal years subsequent to March 31, 1999 are as follows:
$345,338 in 2000, $364,157 in 2001, $278,580 in 2002, $202,862 in 2003 and
$970,151 in 2004.
The Company paid $488,987, $296,209, and $397,417 in interest on all debts
in fiscal 1999, 1998, and 1997, respectively.
F-76
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
Total income tax expense for the years ended March 31, 1999, 1998, and 1997
consisted of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
1999:
Federal............................................ $ 3,351,177 $ (236,914) 3,114,263
State.............................................. 792,186 (30,528) 761,658
Foreign............................................ -- 3,141 3,141
------------ ----------- ------------
Total.............................................. $ 4,143,363 $ (264,301) $ 3,879,062
------------ ----------- ------------
------------ ----------- ------------
1998:
Federal............................................ $ 3,792,827 $ (510,774) $ 3,282,053
State.............................................. 896,636 (34,925) 861,711
Foreign............................................ -- 8,483 8,483
------------ ----------- ------------
Total.............................................. $ 4,689,463 $ (537,216) $ 4,152,247
------------ ----------- ------------
------------ ----------- ------------
1997:
Federal............................................ $ 2,583,180 $ (507,257) $ 2,075,923
State.............................................. 598,487 (157,198) 441,289
Foreign............................................ -- (80,230) (80,230)
------------ ----------- ------------
Total.............................................. $ 3,181,667 $ (744,685) $ 2,436,982
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
Income tax expense from continuing operations differed from the amount
computed by applying the U.S. federal income tax rate of 34% to earnings before
income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Computed expected tax expense from continuing
operations........................................ $ 2,975,239 $ 2,836,896 $ 1,976,256
Increase (decrease) in income taxes resulting from:
Amortization of goodwill........................ 251,942 178,153 139,220
Gain on sale of joint venture................... -- 478,896 --
Equity in joint venture......................... -- -- (30,751)
State income taxes (net of valuation allowance
and federal income tax benefit)............... 502,694 568,729 291,251
Change in valuation allowance, exclusive of
state tax..................................... -- -- (118,500)
Other (net)..................................... 149,187 89,573 179,506
------------ ------------ ------------
$ 3,879,062 $ 4,152,247 $ 2,436,982
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-77
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of March 31,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Uncollected receivables that are not yet deductible for tax purposes............... $ 461,136 $ 520,363
Compensated absences, principally due to accrual for financial reporting
purposes......................................................................... 1,251,881 961,786
Deferred compensation.............................................................. 4,068,408 1,267,066
Net operating loss carryforwards................................................... 191,596 203,345
----------- -----------
Total gross deferred tax assets................................................ 5,973,021 2,952,560
Less valuation allowance........................................................... 80,355 80,355
----------- -----------
Net deferred tax assets........................................................ 5,892,666 2,872,205
----------- -----------
Deferred tax liabilities:
Tax depreciation in excess of financial statement Depreciation..................... (1,101,723) (800,325)
Capitalized software product development costs..................................... (193,982) (101,085)
Unbilled contract revenue.......................................................... (2,866,559) (2,027,937)
Deferred compensation.............................................................. (1,251,642) --
Other.............................................................................. (286,022) (271,616)
----------- -----------
Total gross deferred tax liabilities........................................... (5,699,928) (3,200,963)
----------- -----------
Net deferred tax asset (liability)............................................. $ 192,738 $ (328,758)
----------- -----------
----------- -----------
</TABLE>
At March 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $206,000 and $1,370,000, respectively. Such
carryforwards have various expiration dates and begin to expire in the year
ended March 31, 2000. For financial purposes, a valuation allowance of $80,355
has been recognized to offset the deferred tax asset related to the portion of
the state net operating losses which the Company believes will more likely than
not expire unutilized.
Management has evaluated the remaining temporary differences and concluded
that it is more likely than not that the Company will have sufficient taxable
income, of an appropriate character within the carryback and carryforward period
permitted by current tax law, to allow for the utilization of the deductible
amounts generating the deferred tax assets and, therefore, no valuation
allowance is required as of March 31, 1999 and 1998.
The Company made federal and state income tax payments of $3,538,312,
$3,568,245, and $2,707,724, during fiscal 1999, 1998, and 1997, respectively.
(7) STOCK OPTIONS
A&T has granted common stock options to certain key employees under its
stock option plans. All plans provide that the fair value upon which option
exercise prices are based shall be the average of the high and low sale prices
of the Company's common stock as reported on the NASDAQ National Market System
on the day the option is granted. Options awarded vest at a rate of 20%
annually, commencing on the date of award.
F-78
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCK OPTIONS (CONTINUED)
The transactions under the Company's stock option plans for the years ended
March 31, 1999, 1998, and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ----------------- ---------- ----------------- --------- -----------------
Outstanding at beginning of
year.......................... 869,079 $ 10.39 907,017 $ 8.39 898,820 $ 8.22
Granted......................... 191,209 $ 18.98 299,875 $ 13.31 78,600 $ 9.38
Exercised....................... (111,507) $ 8.54 (317,076) $ 7.48 (51,269) $ 6.63
Canceled or expired............. (24,690) $ 11.71 (20,737) $ 9.66 (19,134) $ 9.51
---------- ------ ---------- ------ --------- -----
Outstanding at end of year...... 924,091 $ 11.59 869,079 $ 10.39 907,017 $ 8.39
---------- ------ ---------- ------ --------- -----
---------- ------ ---------- ------ --------- -----
Exercisable at end of year...... 570,447 476,953 649,008
---------- ---------- ---------
---------- ---------- ---------
Shares reserved at end of
year.......................... 1,014,362 975,869 952,370
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------------------------------- ----------- ------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$6.50--$9.46........................... 328,066 2.71 $ 7.83 280,087 $ 7.58
$9.67--$10.50.......................... 174,275 3.32 $ 9.86 154,235 $ 9.88
$12.96--$22.00......................... 421,750 5.56 $ 15.23 136,125 $ 14.50
----------- -----------
$6.50--$22.00.......................... 924,091 4.13 $ 11.59 570,447 $ 9.86
----------- -----------
----------- -----------
</TABLE>
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant date for awards under those
plans consistent with the requirements of Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings $ 4,871,640 $ 4,191,564 $ 3,375,536
As reported......................................................... $ 4,320,328 $ 3,721,101 $ 3,151,392
Pro forma...........................................................
Basic earnings per share $ 1.34 $ 1.19 $ 0.96
As reported......................................................... $ 1.19 $ 1.05 $ 0.90
Pro forma...........................................................
Diluted earnings per share $ 1.20 $ 1.07 $ 0.93
As reported......................................................... $ 1.06 $ 0.94 $ 0.86
Pro forma...........................................................
</TABLE>
F-79
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCK OPTIONS (CONTINUED)
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
Risk-free interest rate................................................. 5.34% 6.23% 6.26%
Expected life (years)................................................... 5.8 5.7 5.1
Expected volatility..................................................... 35.10% 34.52% 32.78%
Expected dividend yield................................................. 0.0% 1.0% 2.0%
</TABLE>
The weighted-average fair values of options at the date of grant were $7.87,
$5.29, and $3.19 during fiscal 1999, 1998, and 1997, respectively.
In addition, the Company can grant stock options to certain key employees of
Interactive Media Corp., a subsidiary of the Company, to purchase up to 20.2% of
IMC's authorized common stock. The price of the options as of the date of award
and subsequent valuation is based on a calculation considering book value per
share and an earnings factor. Approximately 88% of the available options have
been granted to date; none have been exercised.
(8) EMPLOYEE BENEFIT PLANS
The Company's Savings and Investment Plan is a discretionary contribution
plan as defined in the Internal Revenue Code, Section 401(a)(27). The plan
covers substantially all of the Company's full-time employees. The Company's
contributions are made at the discretion of the Board of Directors for any plan
year. For the plan years ended December 31, 1998, 1997, and 1996, the Company
matched up to 50% of a participant's contribution of up to a maximum of 6% of
the participant's compensation, depending on the business unit to which the
participant was assigned. The Company's matching contributions to this plan were
$2,907,818 $1,847,496, and $1,767,992 for the years ended March 31, 1999, 1998,
and 1997, respectively. One of the investment options available under the
Company's Savings and Investment Plan is the purchase of the Company's common
stock. The Plan owned 179,896, 151,191, and 126,626 shares of common stock of
the Company at March 31, 1999, 1998, and 1997, respectively.
The A&T Employee Stock Ownership Plan (ESOP) covers substantially all
full-time employees. Contributions to the plan are made at the discretion of the
Board of Directors for any plan year. The Company's contributions to the plan
amounted to $109,900, $101,600, and $112,000 for fiscal 1999, 1998, and 1997,
respectively. The plan owned 521,594, 532,694, and 571,319 shares of common
stock of the Company at March 31, 1999, 1998, and 1997, respectively, and all
shares are allocated to the participants of the ESOP and are included in
outstanding shares of common stock.
F-80
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Accrued vacation............................................... $ 4,829,431 $ 4,671,092
Accrued compensation and related taxes......................... 4,725,621 3,987,617
Accrued benefits............................................... 2,034,693 1,953,372
Accrued income taxes payable................................... 462,312 190,625
Other.......................................................... 486,448 547,997
------------- -------------
$ 12,538,505 $ 11,350,703
------------- -------------
------------- -------------
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
The Company occupies certain office facilities and uses certain equipment
under lease agreements with terms that range from two to six years. Many of the
leases have renewal options with similar terms. All of these agreements are
accounted for as operating leases. Minimum lease payments for which the Company
is obligated are as follows (the amounts are net of certain maintenance
expenses, insurance, and taxes):
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31:
- -------------------------------------------------------------------------------
<S> <C>
2000........................................................................... $ 5,146,021
2001........................................................................... 4,249,620
2002........................................................................... 2,918,974
2003........................................................................... 1,594,740
2004........................................................................... 582,780
-------------
Total minimum lease payments................................................... $ 14,492,135
-------------
-------------
</TABLE>
Lease expense amounted to approximately $5,534,000, $5,776,000, and
$5,138,000, in fiscal 1999, 1998, and 1997, respectively.
The U.S. Government has the right to audit and make retroactive adjustments
under certain contracts. Audits through March 31, 1997 have been completed. In
the opinion of management, adjustments, if any, resulting from audits for the
years ended March 31, 1998 and 1999 will not have a material effect on the
Company's consolidated financial statements.
In addition, government funding continues to be dependent on congressional
approval of program level funding and on contracting agency approval for the
Company's work. The extent to which backlog will be funded in the future cannot
be determined.
Under the terms of the Design Systems & Services, Inc. purchase agreement
executed in fiscal 1995, the Company is committed to make contingent payments up
to $400,000 to the former owner of the company. Contingent payments are based on
15% of revenues derived from sales of a ship design software product made
between the purchase date and April 30, 1999. The Company made contingent
payments to the former owner totaling $48,155 and $66,682 during fiscal 1999 and
fiscal 1998, respectively.
Under the terms of the UP purchase agreement, if the aggregate net profit of
Interactive Media for the eight fiscal quarters ending September 30, 1999 ("the
Second Determination Date") is greater than
F-81
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES (CONTINUED)
two times the combined cumulative net profit of Interactive Media and UP for the
four quarters ending September 30, 1997, the Company is obligated to pay to the
former owners of UP 81,100 shares of Interactive Media stock, or cash of
$2,250,000, or a combination of stock and cash which together equal the
appraised value of the contingent stock payment at the Second Determination
Date. However, the former owners of UP may not elect to receive an aggregate
amount of cash in excess of $2,250,000. If at the Second Determination Date, the
net profit of Interactive Media for the eight fiscal quarters ending September
30, 1999 is equal to or greater than 75%, but less than or equal to 100%, of two
times the combined cumulative net profit of Interactive Media and UP for the
four quarters ending September 30, 1997, the Company will be obligated to pay
the former owners of UP 40,550 shares of Interactive Media stock, or cash of
$1,125,000, or a combination of stock and cash which together equal the
appraised value of the contingent stock payment at the determination date.
However, the former owners of UP may not elect to receive an aggregate amount of
cash in excess of $1,125,000. If the merger with Anteon Corporation is
completed, under the terms of the UP purchase agreement the contingent payment
due to the former owners of UP, Inc. on September 30, 1999 would be payable upon
closing.
In fiscal 1997, the Company received $450,000 under the terms of a
development agreement with the Connecticut Department of Economic Development to
fund technology-based training development. Under the terms of the agreement,
the Company is required to pay royalties equal to 3% of gross sales of
technology-based training products initiated in Connecticut. Royalty payments
will be deemed to be paid in full when royalty payments are equal to a return on
investment of 15% and the Company has maintained a Connecticut presence. Under
the terms of the agreement, the Company made royalty payments totaling $63,000
in fiscal 1999 and $75,085 in fiscal 1998.
In fiscal 1995 and 1996, the Company received $200,000 under the terms of a
development agreement executed in October 1994 with a state-financed
corporation, Connecticut Innovations, Inc. (CII), to assist in funding the
development of commercial imaging processing products and services. Effective
November 30, 1998, CII and the Company terminated the Development Agreement. As
of the date of termination, CII had advanced to the Company $200,000 in
development funds and the Company had reimbursed CII $42,035 under terms of that
Development Agreement. Under the termination agreement, the Company assigned all
rights related to the commercial imaging products developed under the agreement
to CII, and CII released the Company from any further obligation to reimburse
CII for any Development Funds advanced by CII to the Company.
The Company may from time to time be involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
(11) SEGMENT REPORTING
The Company operates principally in two segments, Engineering and
Information Technologies (Engineering/IT), and technology-based training, which
it develops through its wholly owned subsidiary, Interactive Media Corp.
(Interactive Media). The Engineering/IT segment serves primarily the needs of
the Department of Defense while the Interactive Media segment targets both
government and commercial customers. The Company's management measures
performance based upon each segment's operating earnings. Total revenue by
segment includes both sales to unaffiliated customers, as reported in the
Company's consolidated statements of earnings, and intersegment sales.
F-82
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) SEGMENT REPORTING (CONTINUED)
The following table presents information about the Company's segments for
the years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
INTERACTIVE
MARCH 31, 1999 ENGINEERING/IT MEDIA ELIMINATIONS CONSOLIDATED
- ----------------------------------------------- -------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................ $ 144,247,951 $ 26,106,942 -- $ 170,354,893
-------------- ---------------- ------------- --------------
Intersegment sales............................. 1,629,664 144,581 (1,774,245) --
-------------- ---------------- ------------- --------------
$ 145,877,615 $ 26,251,523 $ (1,774,245) $ 170,354,893
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Operating earnings............................. $ 8,821,279 $ 1,459,077 $ -- $ 10,280,356
-------------- ---------------- ------------- --------------
Interest expense............................. 488,987
--------------
Interest income.............................. (138,803)
--------------
Other, net................................... 1,179,470
--------------
1,529,654
--------------
Earnings before income taxes................. $ 8,750,702
--------------
Depreciation expense........................... $ 1,774,641 $ 563,306 $ 2,337,947
-------------- ---------------- --------------
-------------- ---------------- --------------
Capital expenditures........................... $ 2,092,883 $ 414,785 $ 2,507,668
-------------- ---------------- --------------
-------------- ---------------- --------------
Amortization expense........................... $ 797,931 $ 383,395 $ 1,181,326
-------------- ---------------- --------------
-------------- ---------------- --------------
Identifiable assets at March 31, 1999.......... $ 59,225,782 $ 14,520,014 -- $ 73,745,796
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
INTERACTIVE
MARCH 31, 1998 ENGINEERING/IT MEDIA ELIMINATIONS CONSOLIDATED
- ----------------------------------------------- -------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................ $ 139,823,861 $ 20,132,433 -- $ 159,956,294
Intersegment sales............................. 1,100,771 45,550 (1,146,321) --
-------------- ---------------- ------------- --------------
$ 140,924,632 $ 20,177,983 $ (1,146,321) $ 159,956,294
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Operating earnings............................. $ 6,862,631 $ 1,082,535 -- $ 7,945,166
-------------- ---------------- ------------- --------------
Interest expense............................. 296,209
Interest income.............................. (125,200)
Equity in income of joint venture............ (16,969)
Gain on sale of joint venture................ (1,591,483)
Other, net................................... 1,038,798
--------------
(398,645)
--------------
Earnings before income taxes................... $ 8,343,811
--------------
--------------
Depreciation expense........................... $ 1,943,011 $ 436,901 $ 2,379,912
-------------- ---------------- --------------
-------------- ---------------- --------------
Capital expenditures........................... $ 2,545,451 $ 485,343 $ 3,030,794
-------------- ---------------- --------------
-------------- ---------------- --------------
Amortization expense........................... $ 753,332 $ 133,118 $ 886,450
-------------- ---------------- --------------
-------------- ---------------- --------------
Identifiable assets at March 31, 1998.......... $ 50,202,241 $ 13,406,973 -- $ 63,609,214
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
</TABLE>
F-83
<PAGE>
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following summarizes quarterly results of operations for the years ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED: JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 TOTAL
- -------------------------------------------------- --------- ------------ ------------ ----------- ----------
FISCAL 1999
Revenues........................................ $ 41,320 $ 41,132 $ 42,219 $ 45,684 $ 170,355
Operating earnings.............................. 2,469 2,402 2,683 2,726 10,280
Net earnings.................................... 1,168 1,158 1,223 1,323 4,872
Earnings per share:
Basic......................................... $ 0.32 $ 0.32 $ 0.34 $ 0.36 $ 1.34
Diluted....................................... $ 0.28 $ 0.29 $ 0.31 $ 0.32 $ 1.20
FISCAL 1998
Revenues........................................ $ 37,450 $ 38,157 $ 40,773 $ 43,576 $ 159,956
Operating earnings.............................. 1,843 1,448 2,307 2,347 7,945
Net earnings.................................... 916 1,084 1,071 1,121 4,192
Earnings per share:
Basic......................................... $ 0.27 $ 0.31 $ 0.30 $ 0.31 $ 1.19
Diluted....................................... $ 0.25 $ 0.28 $ 0.27 $ 0.27 $ 1.07
</TABLE>
F-84
<PAGE>
ANTEON CORPORATION
EXCHANGE OFFER FOR $100,000,000
OF ITS 12% SENIOR SUBORDINATED
NOTES DUE 2009
---------------------
PROSPECTUS
, 1999
---------------------
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of Anteon Corporation since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The laws of the Commonwealth of Virginia pursuant to which the Company is
incorporated permit it to indemnify its officers and directors against certain
liabilities with the approval of its shareholders. The articles of incorporation
of the Company, which have been approved by its shareholders, provide for the
indemnification of each director and officer (including former directors and
officers and each person who may have served at the request of the Company as a
director or officer of any other legal entity and, in all such cases, his or her
heirs, executors and administrators) against liabilities (including expenses)
reasonably incurred by him or her in connection with any actual or threatened
action, suit or proceeding to which he or she may be made party by reason of his
or her being or having been a director or officer of the Company, except in
relation to any action, suit or proceeding in which he or she has been adjudged
liable because of willful misconduct or a knowing violation of the criminal law.
The Company has purchased officers' and directors' liability insurance
policies. Within the limits of their coverage, the policies insure (1) the
directors and officers of the Company against certain losses resulting from
claims against them in their capacities as directors and officers to the extent
that such losses are not indemnified by the Company and (2) the Company to the
extent that it indemnifies such directors and officers for losses as permitted
under the laws of Virginia.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The Exhibit Index beginning on page E-1 is hereby incorporated by reference.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1999.
ANTEON CORPORATION
BY: /S/ CARLTON B. CRENSHAW
-----------------------------------------
Carlton B. Crenshaw
Senior Vice President and
Chief Financial and Administrative Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby constitutes and appoints Carlton B. Crenshaw or Curtis L. Schehr or
either of them his true and lawful agent, proxy and attorney-in-fact, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to (i) act on, sign and file with the
Securities and Exchange Commission any and all amendments (including
post-effective amendments) to this registration statement together with all
schedules and exhibits thereto and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto, (ii) act on, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith, (iii) act on and file any supplement to any
prospectus included in this registration statement or any such amendment or any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and (iv) take any and all actions which may
be necessary or appropriate in connection therewith, granting unto such agent,
proxy and attorney-in-fact full power and authority to do and perform each and
every act and thing necessary or appropriate to be done, as fully for all
intents and purposes as he might or could do in person, hereby approving,
ratifying and confirming all that such agents, proxies and attorneys-in-fact or
any of their substitutes may lawfully do or cause to be done by virtue thereof.
II-2
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief
/s/ JOSEPH M. KAMPF Executive Officer and
- ------------------------------ Director (Principal August 9, 1999
Joseph M. Kampf Executive Officer)
Senior Vice President and
/s/ CARLTON B. CRENSHAW Chief Financial and
- ------------------------------ Administrative Officer August 9, 1999
Carlton B. Crenshaw (Principal Financial and
Accounting Officer)
/s/ FREDERICK J. ISEMAN Chairman of the Board and
- ------------------------------ Director August 9, 1999
Frederick J. Iseman
/s/ THOMAS M. COGBURN Director
- ------------------------------ August 9, 1999
Thomas M. Cogburn
/s/ GILBERT F. DECKER Director
- ------------------------------ August 9, 1999
Gilbert F. Decker
Director
- ------------------------------
Robert A. Ferris
/s/ PAUL KAMINSKI Director
- ------------------------------ August 9, 1999
Paul Kaminski
/s/ STEVEN M. LEFKOWITZ Director
- ------------------------------ August 9, 1999
Steven M. Lefkowitz
Director
- ------------------------------
Joseph Maurelli
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 7, 1999, by and among the Company, Buffalo
Acquisition Corporation and Analysis & Technology, Inc. (incorporated by reference to Exhibit Z
to A&T's Current Report on Form 8-K filed on June 9, 1999 (Commission File No. 0-14161)).
3.1 Articles of Incorporation.
3.2 By-laws.
4.1 Indenture, dated as of May 11, 1999, by and among the Company, Vector Data Systems, Inc.,
Techmatics, Inc. and IBJ Whitehall Bank & Trust Company, as trustee.
4.2 Registration Rights Agreement, dated May 6, 1999, by and among the Company, Vector Data Systems,
Inc., Techmatics, Inc., Credit Suisse First Boston Corporation, Deutsche Bank Securities, Inc.
and Legg Mason Wood Walker, Incorporated.
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re legality.
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re tax matters.
10.1 Stock Purchase Agreement, dated August 29, 1997, by and among the Company, Vector Data Systems,
Inc. and the shareholders of Vector Data Systems, Inc. signatories thereto.
10.2 Agreement and Plan of Merger, dated May 13, 1998, by and among the Company, TM Acquisition Corp.,
Techmatics, Inc. and certain shareholders of Techmatics, Inc. signatories thereto.
10.3 Purchase Agreement, dated May 6, 1999, by and among the Company, Vector Data Systems, Inc.,
Techmatics, Inc., and Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc. and
Legg Mason Wood Walker, Incorporated, as initial purchasers.
10.4 Credit Agreement, dated as of June 23, 1999, among the Company, Credit Suisse First Boston,
Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein.
10.5 Pledge Agreement, dated as of June 23, 1999, among the Company, Azimuth Technologies, Inc.,
Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc.
and Mellon Bank, N.A.
10.6 Indemnity, Subrogation and Contribution Agreement, dated as of June 23, 1999, among the Company,
Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc.
and Mellon Bank, N.A.
10.7 Subsidiary Guarantee Agreement, dated as of June 23, 1999, among Analysis & Technology, Inc.,
Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A.
10.8 Security Agreement, dated as of June 23, 1999, among the Company, Analysis & Technology, Inc.,
Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A.
10.9 Fee Agreement, dated as of June 1, 1999, between the Company and Caxton-Iseman Capital, Inc.
10.10 Company Amended and Restated Omnibus Stock Plan.
12.1 Computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Company.
23.1 Consent of KPMG LLP, independent accountants.
23.2 Consent of Arthur Andersen LLP, independent accountants.
23.3 Consent of Grant Thornton LLP, independent accountants.
23.4 Consents of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1 and Exhibit 8.1).
24.1 Power of Attorney (included on signature page).
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
25.1 Statement of eligibility of IBJ Whitehall Bank & Trust Company.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* To be filed by amendment.
E-2
<PAGE>
Exhibit 3.1
ARTICLES OF AMENDMENT
OF
ANTEON CORPORATION
To the State Corporation Commission
Commonwealth of Virginia
The following Articles of Amendment are hereby submitted
pursuant to the provisions of the Virginia Stock Corporation Act on behalf of
the corporation hereinafter named.
1. The name of the corporation (hereinafter referred to as the
"corporation") is Anteon Corporation.
2. The Capitalization as set forth in the Articles of
Incorporation of the corporation is hereby amended to read as follows:
"There shall be one class of stock, Common Stock, and there shall be
4,415,460 shares authorized for issuance at a par value of $0.05 per
share. Each share of Common Stock shall have full voting rights.
3. The date of adoption of the amendment herein provided for
was June 21, 1999.
4. The amendment herein provided for was adopted by unanimous
consent of all of the stockholders of the corporation.
Executed on June 21, 1999.
ANTEON CORPORATION
By: /s/ JOSEPH M. KAMPF
------------------------------------
Name: Joseph M. Kampf
Title: President and Chief Executive
Officer
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
June 22, 1999
The State Corporation Commission has found the accompanying
articles submitted on behalf of Anteon Corporation to comply with the
requirements of law, and confirms payment of all related fees.
Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be
issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective June 22, 1999, at 02:33 p.m.
The corporation is granted the authority conferred on it by
law in accordance with the articles, subject to the conditions and restrictions
imposed by law.
STATE CORPORATION COMMISSION
By: /s/ T.V. MORRISON JR.
------------------------
Commissioner
<PAGE>
ARTICLES OF AMENDMENT
OF
OGDEN PROFESSIONAL SERVICES CORPORATION
To the State Corporation Commission
Commonwealth of Virginia
The following articles of Amendment are hereby submitted
pursuant to the provisions of the Virginia Stock Corporation Act on behalf of
the corporation hereinafter named.
1. The name of the corporation (hereinafter referred to as the
"corporation") is Ogden Professional Services Corporation.
2. Article One of the Articles of Incorporation of the
corporation is hereby amended to read as follows:
"The name of the corporation is "Anteon Corporation."
3. The date of adoption of the amendment herein provided for
was April 17, 1996.
4. The amendment herein provided for was adopted by unanimous
consent of all of the shareholders of the corporation.
Executed on April 17, 1996
OGDEN PROFESSIONAL SERVICES
CORPORATION
By: /s/ JOSEPH M. BARRY
--------------------------
Name: Joseph M. Barry
Title: Vice President
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
April 22, 1996
The State Corporation Commission has found the accompanying
articles submitted on behalf of ANTEON CORPORATION (FORMERLY OGDEN PROFESSIONAL
SERVICES CORPORATION) to comply with the requirements of law, and confirms
payment of all related fees.
Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be
issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective April 22, 1996.
The corporation is granted the authority conferred on it by
law in accordance with the articles, subject to the conditions and restrictions
imposed by law.
STATE CORPORATION COMMISSION
By: /s/ T.V. MORRISON JR.
-------------------------
Commissioner
<PAGE>
ARTICLES OF AMENDMENT
OF
OGDEN GOVERNMENT SERVICES CORPORATION
To the State Corporation Commission
Commonwealth of Virginia
The following Articles of Amendment are hereby submitted
pursuant to the provisions of the Virginia Stock Corporation Act on behalf of
the corporation hereinafter named.
1. The name of the corporation (hereinafter referred to as the
"corporation") is Ogden Government Services Corporation.
2. Article One of the Articles of Incorporation of the
corporation is hereby amended to read as follows:
"The name of the corporation is "Ogden Professional Services
Corporation."
3. The date of adoption of the amendment herein provided for
was May 1, 1995.
4. The amendment herein provided for was adopted by unanimous
written consent of all of the shareholders of the corporation pursuant to
Section 13.1-657 of the Virginia Stock Corporation Act.
Executed on May 1, 1995
OGDEN PROFESSIONAL SERVICES
CORPORATION
By: /s/ PETER ALLEN
------------------------
Name: Peter Allen
Title: Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
May 11, 1995
The State Corporation Commission has found the accompanying
articles submitted on behalf of OGDEN PROFESSIONAL SERVICES CORPORATION
(FORMERLY OGDEN GOVERNMENT SERVICES CORPORATION) to comply with the requirements
of law, and confirms payment of all related fees.
Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be
issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective May 11, 1995, at 12:45 p.m.
The corporation is granted the authority conferred on it by
law in accordance with the articles, subject to the conditions and restrictions
imposed by law.
STATE CORPORATION COMMISSION
By: /s/ T.V. MORRISON JR.
-------------------------
Commissioner
<PAGE>
ARTICLES OF AMENDMENT
OF
EVALUATION RESEARCH CORPORATION
To the State Corporation Commission
Commonwealth of Virginia
The following Articles of Amendment are hereby submitted
pursuant to the provisions of the Virginia Stock Corporation Act on behalf of
the corporation hereinafter named.
1. The name of the corporation (hereinafter referred to as the
"corporation") is Evaluation Research Corporation.
2. Article One of the Articles of Incorporation of the
corporation is hereby amended to read as follows:
"The name of the corporation is "Ogden Government Services
Corporation."
3. The date of adoption of the amendment herein provided for
was March 13, 1992.
4. The amendment herein provided for was adopted by unanimous
written consent of all of the shareholders of the corporation pursuant to
Section 13.1-657 of the Virginia Stock Corporation Act.
Executed on March 13, 1992
EVALUATION RESEARCH CORPORATION
By: /s/ PETER ALLEN
---------------------------
Name: Peter Allen
Title: Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
March 20, 1992
The State Corporation Commission has found the accompanying
articles submitted on behalf of OGDEN GOVERNMENT SERVICES CORPORATION (formerly
EVALUATION RESEARCH CORPORATION) to comply with the requirements of law, and
confirms payment of all related fees.
Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be
issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective March 20, 1992.
The corporation is granted the authority conferred on it by
law in accordance with the articles, subject to the conditions and restrictions
imposed by law.
STATE CORPORATION COMMISSION
By: /s/ HULLIHEN WILLIAMS MOORE
-------------------------------
Commissioner
<PAGE>
ARTICLE OF MERGER
ERC Development Corporation, a Maryland corporation, with its
principal office at 3211 Jermantown Road, Fairfax, Virginia ("Dev. Corp."), and
Evaluation Research Corporation, a Virginia corporation, with its principal
office at 3211 Jermantown Road, Fairfax, Virginia ("ERC"), agree that Dev.
Corp., a wholly-owned subsidiary, will be merged into ERC, its parent
corporation. ERC was incorporated on July 16, 1976, under the general law of the
Commonwealth of Virginia. ERC has been authorized to do business in Maryland
since January 31, 1983. Neither corporation owns real property In Maryland. The
effective date is December 31, 1987.
The terms and conditions of the transactions were advised,
authorized and approved by unanimous vote of the board of directors of each
corporation in accordance with the Maryland General Corporation Law and the
Virginia Stock Corporation Act. No vote of the shareholders was required since
Dev. Corp. is a wholly-owned subsidiary of ERC. Both corporations executed an
Agreement and Plan of Merger on December 4, 1987, providing that each of the
1,000 shares of common stock, $.01 par value, authorized and outstanding of Dev.
Corp. shall be cancelled and only ERC shall remain with all the rights, duties
and obligations of ERC and Dev. Corp. ERC has 3,415,460 shares of common stock,
$.05 par value authorized.
The Articles of Incorporation and officers of the surviving
corporation shall be those of ERC, without change.
The individuals executing this document acknowledge that it is
the act of the corporation for which they are signing. To the best of their
knowledge, information and belief, said individuals executing this document
verify that the matters and facts with respect to authorization and approval
stated herein are true in all material respects and make this statement under
the penalties of perjury.
ERC DEVELOPMENT CORPORATION EVALUATION RESEARCH CORPORATION
By: /s/ JACK E. AALSETH By: /s/ LESLIE W. WRIGHT
--------------------------------- ---------------------------------
Name: Jack E. Aalseth Name: Leslie W. Wright
Title: President Title: President
Attest: /s/ MYRNA E. FRIEDMAN Attest: /s/ MYRNA E. FRIEDMAN
----------------------------- -----------------------------
Name: Myrna E. Friedman Name: Myrna E. Friedman
Title: Assistant Secretary Title: Assistant Secretary
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT, made this 4th day of December, 1987, by and
between Evaluation Research Corporation, a Virginia corporation (hereinafter
"ERC"), and ERC Development Corporation, a Maryland corporation (hereinafter
"Dev. Corp."),
W I T N E S S E T H:
WHEREAS, ERC wishes to merge with Dev. Corp.; and
WHEREAS, Dev. Corp., a wholly-owned subsidiary of ERC, wishes
to merge with ERC;
NOW THEREFORE, in consideration of the mutual promises and
covenants contained herein, the parties hereto agree as follows:
1. Dev. Corp. shall be merged into ERC. ERC shall be the
surviving corporation, with its Certificate of Incorporation and By-laws
unchanged by the merger.
2. Each party shall at any time and from time to time after
the date hereof at the request of the other party execute, acknowledge, deliver
and perform or cause to be executed, acknowledged, delivered and performed all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably required to carry out the
transaction contemplated hereby.
3. The merger shall become effective on December 31, 1987 (the
"Effective Time").
4. At the Effective Time, each outstanding share of Dev. Corp.
shall be cancelled. Only ERC shall remain, with all the rights, duties and
obligations of ERC and Dev. Corp.
5. The boards of directors of Dev. Corp. and ERC may amend or
abandon the plan of merger at any time prior to the Effective Time.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ERC DEVELOPMENT CORPORATION EVALUATION RESEARCH CORPORATION
<PAGE>
2
By: /s/ JACK E. AALSETH By: /s/ LESLIE W. WRIGHT
--------------------------------- ---------------------------------
Name: Jack E. Aalseth Name: Leslie W. Wright
Title: President Title: President
Attest: /s/ MYRNA E. FRIEDMAN Attest: /s/ MYRNA E. FRIEDMAN
----------------------------- -----------------------------
Name: Myrna E. Friedman Name: Myrna E. Friedman
Title: Assistant Secretary Title: Assistant Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
RICHMOND, December 16, 1987
The accompanying articles having been delivered to the State
Corporation Commission on behalf of ERC Development Corporation (a Md. corp.)
and the Commission having found that the articles comply with the requirements
of law and that all required fees have been paid, it is ORDERED that this
CERTIFICATE OF MERGER be issued, and that this order, together with the
articles, be admitted to record in the office of the Commission; and that ERC
Development Corporation (a Md. corp.) be merged into EVALUATION RESEARCH
CORPORATION the surviving corporation, which shall continue to be a corporation
existing under the laws of the State of Virginia with the corporate name
EVALUATION RESEARCH CORPORATION and that the separate existence of the
corporations parties to the plan of merger, except the surviving corporation,
shall cease, effective December 31, 1987.
STATE CORPORATION COMMISSION
By: /s/ ELIZABETH B. LACY
-------------------------
Commissioner
<PAGE>
ARTICLES OF MERGER
Evaluation Research Corporation and Analytic Systems, Inc. hereby
merge, effective December 31, 1986, in accordance with an Agreement and Plan of
Merger, dated December 16, 1986, whereby Evaluation Research Corporation, a
Virginia corporation, shall be the surviving corporation and all the shares of
Analytic Systems, Inc., a Virginia corporation shall be cancelled. Analytic
Systems, Inc., is a wholly-owned subsidiary of Evaluation Research Corporation.
Therefore, the shareholders of the two companies were not required to vote on
said Agreement and Plan of Merger. The Board of Directors of each company
unanimously approved the merger.
ERC DEVELOPMENT CORPORATION EVALUATION RESEARCH CORPORATION
By: /s/ JACK E. AALSETH By: /s/ LESLIE W. WRIGHT
--------------------------------- ---------------------------------
Name: Jack E. Aalseth Name: Leslie W. Wright
Title: President Title: President
Attest: /s/ WILLIAM L. SARGEANT Attest: /s/ WILLIAM L. SARGEANT
----------------------------- -----------------------------
Name: William L. Sargeant Name: William L. Sargeant
Under penalty of perjury, I, William L. Sargeant, swear that I am the
Secretary of Evaluation Research Corporation and Analytic Systems, Inc. and that
the statements contained herein are true and correct.
/s/ WILLIAM L. SARGEANT
-----------------------------
William L. Sargeant
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
RICHMOND, February 4, 1987
The accompanying articles having been delivered to the State
Corporation Commission on behalf of ANALYTICAL SYSTEMS, INC. and the Commission
having found that the articles comply with the requirements of law and that all
required fees have been paid, it is
ORDERED that this CERTIFICATE OF MERGER be issued, and that this
order, together with the articles, be admitted to record in the office of the
Commission; and that ANALYTIC SYSTEMS, INC. be merged into EVALUATION RESEARCH
CORPORATION the surviving corporation, which shall continue to be a corporation
existing under the laws of the State of Virginia with the corporate name
EVALUATION RESEARCH CORPORATION and that the separate existence of the
corporations parties to the plan of merger, except the surviving corporation,
shall cease, effective February 4, 1987.
STATE CORPORATION COMMISSION
By: /s/ ELIZABETH B. LACY
-------------------------
Commissioner
In the Clerk's Office of the Circuit Court, Fairfax County.
<PAGE>
ARTICLES OF AMENDMENT
of the Articles of Incorporation
of
EVALUATION RESEARCH CORPORATION
(Pursuant to Virginia Stock Corporation Act)
1. In lieu of a meeting of Directors, the Board of Directors
of Evaluation Research Corporation, a Virginia Corporation and hereinafter
referred to as the "Corporation," acting by unanimous written consent of all the
Directors of the Corporation effective December 9, 1985, in accordance with the
Virginia Stock Corporation Act, found that the following proposed amendment of
the Corporation's Articles of Incorporation were in the best interests of the
Corporation and directed that it be submitted to a vote of the sole Stockholder:
The Capitalization as set forth in the Articles of
Incorporation of Evaluation Research Corporation, is hereby
amended to read as follows:
"There shall be one class of stock - Class One Common Stock
and there shall be 3,415,460 shares authorized for issuance at
a par value of $.05 per share. Each share of Common Stock
shall have full voting rights."
2. In lieu of a meeting of the sole Stockholder, adoption of
this proposed amendment by the sole Stockholder was accomplished by the
unanimous written consent of the sole Stockholder of the Corporation, by signing
a consent which set forth this proposed amendment, in accordance with Section
13.1-28 of the Virginia Stock Corporation Act.
3. This amendment does not effect any changes in the amount of
stated capital of the Corporation.
4. The number of shares outstanding and entitled to vote on
the proposed amendment, the number of shares voted for and against such proposed
amendment, the number of shares of each class entitled to vote as a class, and
the number of shares of each such class voted for or against such amendment were
as follows:
Shares outstanding all classes, 2,973,916. Shares entitled to
vote, all classes, 2,973,916. Shares, all classes, voted on
such amendment: FOR: 2,973,916; AGAINST: 0. Shares entitled to
vote and voted as a class:
<TABLE>
<CAPTION>
------------------------ ------------------------------- ----------------- ------------
Class Number Outstanding Voted For Voted
Against
<S> <C> <C> <C>
<PAGE>
2
Class One Common Stock 2,973,916 2,973,916 0
</TABLE>
Executed in the name of the Corporation by its President and
its Secretary, who declare under the penalties of perjury that the facts stated
herein are true.
Dated this 10th day of December, 1985.
EVALUATION RESEARCH CORPORATION
By: /s/ LESLIE W. WRIGHT
--------------------------------
Name: Leslie W. Wright
Title: President
By: /s/ WILLIAM L. SARGEANT
--------------------------------
Name: William L. Sargeant
Title: Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
RICHMOND, December 31, 1985
The accompanying articles having been delivered to the State
Corporation Commission on behalf of EVALUATION RESEARCH CORPORATION and the
Commission having found that the articles comply with the requirements of law
and that all required fees have been paid, it is ORDERED that this CERTIFICATE
OF AMENDMENT be issued, and that this order, together with the articles, be
admitted to record in this office of the Commission; and that the corporation
have the authority conferred on it by law in accordance with the
articles, subject to the conditions and restrictions imposed by law.
Upon the completion of such recordation, this order and the
articles shall be forwarded for recordation in the office of the Clerk of the
Circuit Court, Fairfax County.
STATE CORPORATION COMMISSION
By: /s/ ELIZABETH B. LACY
-------------------------
Commissioner
<PAGE>
ARTICLES OF MERGER
OF
ELECTROMAGNETIC TECHNOLOGY, INC.,
(a wholly-owned subsidiary corporation)
AND
ANALYTICAL DISCIPLINES, INC.
(a wholly-owned subsidiary corporation)
INTO
EVALUATION RESEARCH CORPORATION
Pursuant to the provisions of Section 13.1-76 of the Virginia
Stock Corporation Act, the undersigned corporation adopts the following Articles
of Merger for the purpose of merging each of two subsidiary corporations into
the undersigned corporation as the parent corporation of each such subsidiary
corporation, and the surviving corporation of each of the mergers which are the
subjects hereof.
1. The plan of merger concerning Electromagnetic Technology,
Inc. (attached hereto as Exhibit "A"), was duly approved by the Unanimous
Written Consent of the Board of Directors of the Surviving Corporation effective
December 9, 1985.
2. The attached plan of merger concerning Analytic
Disciplines, Inc. (attached hereto as Exhibit "B"), was duly approved by the
Unanimous Written Consent of the Board of Directors of the Surviving Corporation
effective December 9, 1985.
3. The number of outstanding shares of each class of each such
subsidiary corporation and the number of such shares of each class owned
immediately prior to the adoption of each such plan of merger by the parent
corporation, are:
<TABLE>
<CAPTION>
- --------------------------------------- --------------------------------------- -----------------------------
NUMBER OF SHARES OF EACH
NAME OF CORPORATION TOTAL NUMBER OF SHARES OUTSTANDING OF CLASS OWNED BY PARENT
EACH CLASS CORPORATION IMMEDIATELY
PRIOR TO MERGER
<S> <C> <C>
Electromagnetic Technology, Inc. 100 Shares of Class A Common Stock 100 Shares of Class A
Common Stock
Electromagnetic Technology, Inc. 0 Shares of Class B common Stock 0 Shares of Class B
Common Stock
<PAGE>
- --------------------------------------- --------------------------------------- -----------------------------
Analytic Disciplines, Inc. 891 Shares of Common Stock 891 Shares of Common Stock
</TABLE>
4. The undersigned parent corporation is the sole stockholder of
each of the said subsidiary corporations. There are no minority stockholders of
either such subsidiary corporation.
5. Analytic Disciplines, Inc., a foreign corporation, has
complied with the applicable provisions of the laws of the State of Delaware,
its State of incorporation.
Executed in the name of the said parent corporation by its
President and its Secretary who declared under the penalties of perjury that the
facts stated herein are true.
Dated: December 10, 1985.
EVALUATION RESEARCH CORPORATION
By: /s/ LESLIE W. WRIGHT
--------------------------------
Name: Leslie W. Wright
Title: President
By: /s/ WILLIAM L. SARGEANT
--------------------------------
Name: William L. Sargeant
Title: Secretary
<PAGE>
EXHIBIT "A"
PLAN OF MERGER
OF
ELECTROMAGNETIC TECHNOLOGY, INC.
INTO
EVALUATION RESEARCH CORPORATION
The following Plan of Merger has been duly adopted by the
Unanimous Written Consent of Directors of Evaluation Research Corporation
effective the 9th day of December, 1985.
I. The name of the subsidiary corporation is electromagnetic
Technology, Inc., and its State of Incorporation is Virginia.
II. The name of the surviving corporation is Evaluation
Research Corporation, and its State of Incorporation is Virginia.
III. The terms and conditions of the merger are as follows:
(a) Until altered, amended or repealed, as therein
provided, the By-Laws of the surviving corporation, as in effect at the time of
the merger shall remain effective and shall be the By-Laws of the surviving
corporation.
(b) The first annual meeting of the shareholders of the
surviving corporation held after the effective date of this merger shall be the
next annual meeting provided by the By-Laws of the surviving corporation.
(c) The first regular meeting of the Board of Directors
of the surviving corporation shall be held as soon as appropriate after the date
on which the merger shall become effective and may be called in the manner
provided for in the By-Laws of the surviving corporation.
(d) The surviving corporation shall pay all expenses of
carrying this Plan of Merger into effect and of accomplishing the merger.
(e) When the merger shall become effective, the separate
existence of Electromagnetic Technology, Inc. shall cease and said corporation
shall be
<PAGE>
2
merged into the surviving corporation, and the surviving corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature and be subject to all the restrictions, disabilities and
duties of each of Electromagnetic Technology, Inc. and Evaluation Research
Corporation, and all the singular, the rights, privileges, powers and franchises
of each of said corporations, and all property, real, personal and mixed, and
all debts due to each of the said corporations on whatever account as well as
for share subscriptions and all other things in action or belonging to each of
such corporations, shall be vested in the surviving corporation; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the surviving
corporation as they were of the said several and respective corporations and the
title to any real estate, whether by deed or otherwise, vested in any of the
said merging corporations, shall not revert or be in any way impaired by reason
of this merger, provided that all rights of creditors and all liens upon the
property of any of said merging corporations, shall be preserved unimpaired and
all debts, liabilities and duties of Electromagnetic Technology, Inc. shall
thenceforth attach to the said surviving corporation and may be enforced against
it to the same extent as if said debts, liabilities and duties had been incurred
or contracted by it.
(f) If at any time the surviving corporation shall
consider or be advised that any further assignments or assurance in law or any
things are necessary or desirable to vest in the surviving corporation,
according to the terms thereof, the title to any property or rights of
Electromagnetic Technology, Inc., the proper officers and directors of
Electromagnetic Technology, Inc., shall and will execute and make all such
proper assignments and assurances and do all things necessary or proper to vest
title in such property or rights in the surviving corporation.
IV. If at any time the surviving corporation shall consider or
be advised that any further acts are necessary or desirable to carry-out the
purposes of this Plan of Merger, the proper officers and directors of
Electromagnetic Technology, Inc., shall and will do all things necessary to
effectuate said end.
V. In that Evaluation Research Corporation is the sole owner
and holder of all of the shares of stock of the subsidiary corporation and there
are no minority shareholders of the subsidiary corporation, no provision is
contained here for converting minority owned shares.
VI. No amendment to the Certificate of Incorporation of the
surviving corporation, shall be effected by the merger.
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
RICHMOND, December 31, 1985
The accompanying articles having been delivered to the State
Corporation Commission on behalf of Electromagnetic Technology, Inc., Analytic
Disciplines, Inc. and the Commission having found that the articles comply with
the requirements of law and that all required fees have been paid, it is
ORDERED that this Certificate of Merger be issued, and that this
order, together with the articles, be admitted to record in the office of the
Commission; and that Electromagnetic Technology, Inc., Analytic Disciplines,
Inc. be merged into Evaluation Research Corporation, the surviving corporation,
which shall continue to be a corporation existing under the laws of the State of
Virginia with the corporate name Evaluation Research Corporation and that the
separate existence of the corporations parties to the plan of merger, except the
surviving corporation, shall cease.
STATE CORPORATION COMMISSION
By: /s/ ELIZABETH B. LACY
-------------------------
Commissioner
In the Clerk's Office of the Circuit Court, Fairfax County.
<PAGE>
ARTICLES OF MERGER
MERGING
ERC MERGER CO., INC.
A Delaware Corporation
INTO
EVALUATION RESEARCH CORPORATION
a Virginia Corporation
Evaluation Research Corporation ("ERC"), a Virginia corporation,
and ERC Merger Co., Inc. ("Merger Company"), a Delaware corporation, desiring to
merge pursuant to the provisions of Section 13.1-72 of the Virginia Stock
Corporation Act, and ERC International, Inc., a Delaware corporation, do hereby
certify as follows:
FIRST: That Merger Company shall be merged into ERC pursuant to
that certain Agreement and Plan of Merger attached hereto as Exhibit "A" and
incorporated herein by reference.
SECOND: That the Agreement and Plan of Merger (the "Plan") was
duly approved by the Board of Directors of ERC at a regular meeting on March 20,
1984, that on April 10, 1984 notice was given in the manner provided by the
Virginia Stock Corporation Act to each Stockholder of Record of ERC and such
notice was accompanied by a copy of the Plan; and that the Plan was duly adopted
and approved by the stockholders of ERC at its Annual Meeting of Shareholders on
May 17, 1984.
THIRD: That there were 2,950,572 shares outstanding and entitled
to vote on the Agreement and Plan of Merger, and none of such shares were
entitled to vote thereon as a separate class.
FOURTH: That the number of shares voted for the Agreement and
Plan of Merger were 1,970,398 and the number voted against the said Plan were
45,097.
FIFTH: That adoption of the Agreement and Plan of Merger, and
the performance of its terms have been duly approved by the Boards of Directors
of Merger Company and of ERC International, Inc., and in each case all other
requisite corporate action has been taken with respect thereto.
SIXTH: On the effective date of the Merger, the stated capital
of ERC, the surviving corporation, shall be $148,640.
<PAGE>
SEVENTH: That the within Merger is permitted by the laws of the
State of Delaware, and that all conditions required by the laws of said state
with respect thereto have been satisfied.
EIGHTH: That the surviving corporation is a domestic
corporation.
NINTH: That ERC International, Inc. guarantees and agrees that
it will be jointly severally liable with ERC for prompt payment to the
dissenting stockholders of ERC of the amount, if any, to which they may be
entitled by the provisions of the Virginia Stock Corporation Act with respect to
the rights of dissenting stockholders; that ERC International, Inc. agrees that
it may be served with process in the Commonwealth of Virginia in any proceeding
for the enforcement of rights of a dissenting stockholder of ERC; and that ERC
International, Inc. hereby irrevocably appoints the Clerk of the State
Corporation Commission of Virginia as its agent to accept service of process in
any such proceeding.
IN WITNESS WHEREOF, the within Articles have been duly executed
by and on behalf of the constituent corporations this 9th day of January, 1985.
- --------------------------------------------------------------------------------
ERC Merger Co., Inc. Evaluation Research Corporation
By: /s/ JACK E. AALSETH
By: /s/ JACK E. AALSETH Jack E. Aalseth, President
------------------------------- -------------------------------
Jack E. Aalseth, President
- --------------------------------------------------------------------------------
By: /s/ WILLIAM L. SARGEANT By: /s/ WILLIAM L. SARGEANT
------------------------------- -------------------------------
William L. Sargeant William L. Sargeant
Secretary Secretary
- --------------------------------------------------------------------------------
ERC International, Inc.
By: /s/ JACK E. AALSETH
-------------------------------
Jack E. Aalseth, President
- --------------------------------------------------------------------------------
By: /s/ WILLIAM L. SARGEANT
-------------------------------
William L. Sargeant
Secretary
- --------------------------------------------------------------------------------
<PAGE>
3
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of December
20, 1984 by and among Evaluation Research Corporation, a Virginia corporation
("ERC"), ERC Merger Co., Inc., a Delaware corporation ("Merger Company") and ERC
International Inc., a Delaware Corporation ("Holding Company");
W I T N E S S E T H :
WHEREAS, ERC has an authorized capitalization consisting of (I)
10,000,000 shares of common stock, of the par value of $.05 per share ("Common
Stock"), of which on February 29, 1984, 2,941,017 shares are issued and
outstanding;
WHEREAS, Merger Company has an authorized capitalization
consisting of 50 shares of common stock, par value $.05 per share ("Merger
Company Common Stock"), of which 10 shares have been issued and are outstanding
and owned beneficially and of record by Holding Company; and
WHEREAS, Holding Company has an authorized capitalization
consisting of (I) 1,000 shares of common stock, of the par value of $.05 per
share ("Holding Company Common Stock"), of which 10 shares have been issued and
are outstanding and owned by ERC; and (ii) 60 shares of preferred stock, par
value $.50 per share, none of which shares are issued or outstanding; and
WHEREAS, the Board of Directors of the respective parties hereto
deem it advisable to merge Merger Company into ERC ("the Merger") in accordance
with the laws of the Commonwealth of Virginia and the State of Delaware, and
this Agreement, whereby the holders of shares of ERC Common Stock will receive
shares of Holding Company Common Stock;
<PAGE>
4
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereto
agree that Merger Company shall be merged into ERC which shall be the
corporation surviving such merger and that the terms and conditions of such
merger, the mode of carrying it into effect, and the manner of converting and
exchanging shares shall be as follows:
ARTICLE I
THE MERGER
(a) The Merger shall become effective upon the issuance of a
Certificate of Merger by the Virginia State Corporations Commission and the
filing of all required documents in the State of Delaware, being referred to
herein as the "Effective Time". At the Effective Time, the separate existence of
Merger Company shall cease and Merger Company shall be merged into ERC (Merger
Company and ERC collectively being sometimes referred to herein as the
"Constituent Corporations" and ERC, the corporation designated in the
Certificate as the surviving corporation, being sometimes referred to herein as
the "Surviving Corporation").
(b) Prior to and after the Effective Time, Holding Company, ERC
and Merger Company, respectively, shall take all such action as may be necessary
or appropriate in order to effectuate the Merger. In this connection, Holding
Company shall issue the shares of Holding Company Common Stock which the holders
of ERC Common Stock shall be entitled to receive as provided in Article II
hereof. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with all rights, privileges, immunities and
franchises, of a public as well as of a private nature, and all property, real
and personal, of either of the Constituent Corporations, the officers and
directors of each of the Constituent Corporations as of the Effective Time shall
take all such further action.
ARTICLE II
TERMS OF CONVERSION AND EXCHANGE OF SHARES
At the Effective Time:
(a) Each share of ERC Common Stock issued and outstanding
immediately prior to the Merger shall be changed and converted into one share of
Holding Company Common Stock, which shall thereupon be issued and fully paid and
nonassessable;
<PAGE>
5
(b) The shares of Merger Company Common Stock issued and
outstanding immediately prior to the Merger shall be changed and converted into
such number of shares of ERC Common Stock as shall equal the number of shares of
ERC Common Stock issued and outstanding immediately prior to the merger, which
shares of ERC Common Stock shall thereupon be issued and fully paid and
nonassessable; and
(c) Each share of Holding Company Common Stock issued and
outstanding immediately prior to the Merger shall be cancelled.
(d) Holding Company shall succeed to and assume the obligations
of ERC under and pursuant to the terms of outstanding options to purchase shares
of ERC Common Stock, and shall reserve a sufficient number of shares of Holding
Company Common Stock to fulfill such obligations in accord with the terms of
such instruments. Each right to purchase a share of ERC Common Stock outstanding
immediately prior to the Effective Time pursuant to ERC's Stock Option and other
employee benefit plans will be converted into the right to purchase a share of
Holding Company Common Stock upon the same terms and conditions as existed
immediately prior to the Effective Time. ERC and Holding Company shall have
adopted a Plan of Exchange pursuant to which each holder of warrants to purchase
Common Stock of ERC shall become entitled to exchange any and all shares of such
Common Stock to which such holder may become entitled under the terms of such
warrants for a like number of shares of Holding Company Common Stock.
ARTICLE III
EMPLOYEE PLANS AND BENEFITS
(a) All retirement, deferred compensation, death benefit,
disability and health care plans of ERC and corporations of which ERC owns,
directly or indirectly, 50% or more of the outstanding voting securities,
together with any trust agreements and insurance contracts related thereto and
which are in force on the date hereof and which remain in effect at the
Effective Time, shall not be affected by the Merger.
(b) Holding Company will assume the obligations of ERC under
ERC's Employee Stock Ownership Plan, and under ERC's Employee Stock Option Plan.
Each option outstanding to purchase shares of ERC Common Stock shall, at the
Effective Time, become an option to purchase the same number of shares of
Holding Company Common Stock. At the Effective Time such Plans shall be deemed
amended to include employees of Holding Company among those who are eligible
participants.
<PAGE>
6
ARTICLE IV
CERTIFICATE OF INCORPORATION AND BY-LAWS
From and after the Effective Time, and until thereafter further
amended as provided by law, the Articles of Incorporation of ERC, as amended and
as in effect immediately prior to the Merger shall be and continue to be the
Articles of Incorporation of the Surviving Corporation.
From and after the Effective Time, the By-Laws of ERC, as
amended and as in effect immediately prior to the Merger, shall be and continue
to be the By-Laws of the Surviving Corporation until amended in accordance with
law.
ARTICLE V
DIRECTORS AND OFFICERS
The persons who are directors and officers of ERC immediately
prior to the merger shall become the directors and officers, respectively, of
Holding Company at the Effective Time of the Merger, and the persons who are
directors and officers of Merger Company immediately prior to the Merger shall
become the directors and officers, respectively, of the Surviving Corporation.
ARTICLE VI
STOCK CERTIFICATES
Following the Effective Time, each holder of an outstanding
certificate or certificates theretofore representing shares of ERC Common Stock
may, but shall not be required to, surrender the same to Holding Company for
cancellation or transfer, and such holder or transferee will be entitled to
receive a certificate or certificates representing the same number of shares of
Holding Company Common Stock as the shares of ERC Common Stock previously
represented by the stock certificates surrendered. Until so surrendered or
presented for transfer, each outstanding certificate which, prior to the
Effective Time, represented ERC Common Stock shall be deemed and treated for all
corporate purposes to represent the ownership of the same number of shares of
Holding Company Common Stock as though such surrender or transfer and exchange
had taken place. The stock transfer books from ERC Common Stock shall be deemed
to be closed at the Effective Time and no transfer of shares of ERC Common Stock
outstanding prior to the Effective Time, other than shares held by Holding
Company, shall thereafter be made on such books.
<PAGE>
7
ARTICLE VII
CONDITIONS OF THE MERGER
Consummation of the Merger is subject to the satisfaction of the
following conditions:
(a) The Plan shall have received the approval of the holders of
common stock of each of the Constituent Corporations.
(b) Prior to the Effective Time of the Merger, the Certificate
of Incorporation of Holding Company shall have been amended to increase the
number of authorized shares of common stock to 10,000,000. Further, if the
Shareholders of ERC shall have duly approved an amendment to its Articles of
Incorporation providing for the authorization of 600,000 shares of preferred
stock, to be issued in series, then the Certificate of Incorporation of Holding
Company shall, prior to the Merger, be amended to increase the number of
preferred shares authorized therein to 600,000. If the shareholders of ERC shall
not have approved an amendment as described in the preceding sentence, then,
prior to the Effective Time of the Merger, the Certificate of Incorporation of
Holding Company shall be amended to eliminate provisions authorizing preferred
stock.
(c) There shall have been obtained rulings of the Internal
Revenue Service or an opinion of counsel, satisfactory to the Board of Directors
of ERC, with respect to the tax consequences of the merger and other
transactions incident thereto.
ARTICLE VIII
AMENDMENT AND TERMINATION
The parties hereto by mutual consent of their respective Boards
of Directors may amend, modify or supplement this Agreement in such manner as
may be agreed upon by them in writing, at any time before or after approval of
this Agreement by the common shareholders of ERC; provided, however, that no
such amendment, modification or supplement shall, in the sole judgment of the
Board of Directors of ERC, materially and adversely affect the rights of the
shareholders of ERC.
This Agreement may be terminated and the Merger and other
transactions herein provided for abandoned at any time, whether before or after
approval of this Agreement by the shareholders of ERC, if said Board of
Directors determines for any
<PAGE>
8
reason that the consummation of the transactions provided for herein would be
inadvisable or not in the best interests of ERC or its shareholders.
ARTICLE IX
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, ERC, Merger Company and Holding Company,
pursuant to approval and authorization duly given by resolutions adopted by
their respective Boards of Directors, have each caused this Agreement and Plan
of Merger to be executed by its respective President or one of its respective
Vice Presidents and attested by its respective Secretary or one of its
respective Assistant Secretaries.
- --------------------------------------------------------------------------------
ATTEST: EVALUATION RESEARCH CORPORATION
/s/ WILLIAM L. SARGEANT By: /s/ JACK E. AALSETH
------------------------- ----------------------------
- --------------------------------------------------------------------------------
ATTEST: ERC MERGER CO., INC.
/s/ WILLIAM L. SARGEANT By: /s/ JACK E. AALSETH
------------------------- ----------------------------
- --------------------------------------------------------------------------------
ATTEST: ERC INTERNATIONAL INC.
/s/ WILLIAM L. SARGEANT By: /s/ JACK E. AALSETH
------------------------- ----------------------------
- --------------------------------------------------------------------------------
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
RICHMOND, January 31, 1985
The accompanying articles having been delivered to the State
Corporation Commission on behalf of ERC Merger Co., Inc. (a Dela. corp. not
domest., in Va.) and the Commission having found that the articles comply with
the requirements of law and that all required fees have been paid, it is
ORDERED that this Certificate of Merger be issued, and that this
order, together with the articles, be admitted to record in the office of the
Commission; and that ERC Merger Co., Inc. (a Dela. corp. not domest., in Va.) be
merged into Evaluation Research Corporation, the surviving corporation, which
shall continue to be a corporation existing under the laws of the State of
Virginia with the corporate name Evaluation Research Corporation and that the
separate existence of the corporations parties to the plan of merger, except the
surviving corporation, shall cease.
STATE CORPORATION COMMISSION
By: /s/ THOMAS P. HARWOOD, JR.
------------------------------
In the Clerk's Office of the Circuit Court, Fairfax County.
<PAGE>
AMENDMENT OF THE ARTICLES OF INCORPORATION
OF
EVALUATION RESEARCH CORPORATION
The following is the text of the Articles of Amendment duly
adopted by said Corporation in the manner herein below set forth:
1. The Capitalization as set forth in the Articles of
Incorporation of Evaluation Research Corporation, as amended, is hereby amended
to read as follows:
"There shall be one class of stock - Class One Common Stock and
there shall be 10,000,000 shares authorized for issuance at a
per value of $.05 per share. Each share of Common Stock shall
have full voting rights. All Existing issued and outstanding
Class A Common Stock of the Company shall be exchanged for Class
One Common Stock on the basis of one (1) share of Class One
Common Stock for each Two (2) shares of Class A Common Stock.
Fractional shares shall not be issued by the Company.
Shareholders holding an uneven number of Class A Common Stock
shall have the odd shares redeemed by the Company at fair market
value thereof as of the effective date of this Amendment as
determined by the Board of Directors".
On November 1, 1982, the Board of Directors of Evaluation
Research Corporation met at a properly called meeting to consider a duly
proposed notion to amend the Articles of Incorporation for said Company, the
text of which is set out above, and to refer such matters to the Shareholders
for approval. After consideration of the notion, the Board found that said
motion was in the best interests of the Corporation and adopted it unanimously
on November 1, 1982. The Board then
<PAGE>
directed that notice be given to the Shareholders of record entitled to vote on
this matter.
There were 2,182,182 shares outstanding of the Corporation and
2,150,698 shares entitled to vote on said matter (there were 31,484 shares held
in Treasury of the Corporation). None of the shares were entitled to vote by
class. Notice by United States Mail was given on November 1, 1982 to the
Shareholders entitled to vote on this matter, accompanied by a copy of the
proposed amendment according to the notice provisions of the VA Code stating
that the Shareholders meeting to decide this matter would be held at 11:00 a.m.
on November 27, 1982.
On November 27, 1982, the Shareholders met to vote on the
adoption of the amendment as set forth above. Upon properly proposed motion, the
text of the amendment set forth above was adopted by the Shareholders as an
amendment to the Article of Incorporation. There were 1,689,804 shares
represented at the meeting, either in person or by proxy. 1,635,261 shares voted
in favor of the amendment and 16,653 shares voted against. Said vote represents
96.7% of the shares represented at the meeting in favor and 76% of the total
outstanding shares entitled to vote were in favor.
/s/ JACK E. AALSETH
-------------------------------
Name: Jack E. Aalseth
Title: President
/s/ CONWAY CHRISTIANSON
-------------------------------
Name: Conway Christianson
Title: Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND,
November 30, 1982
The accompanying articles having been delivered to the State
Corporation Commission on behalf of Evaluation Research Corporation and the
Commission having found that the articles comply with the requirements of law
and that all required fees have been paid, it is
ORDERED that this Certificate of Amendment be issued, and that
this order, together with the articles, be admitted to record in the office of
the Commission; and that the corporation have the authority conferred on it by
law in accordance with the articles, subject to the conditions and restrictions
imposed by law.
Upon the completion of such recordation, this order and the
articles shall be forwarded for recordation in the office of the clerk of the
Circuit Court, Fairfax County.
STATE CORPORATION COMMISSION
By: /s/ THOMAS P. HARWOOD, JR.
------------------------------
<PAGE>
ARTICLES OF INCORPORATION
OF
EVALUATION RESEARCH CORPORATION
We hereby associate to form a stock corporation under the
provisions of Chapter I of Title 13.1 of the Code of Virginia, and to that end,
set forth the following:
1. The name of the Corporation is: Evaluation Research
Corporation.
2. The purpose or purposes for which the Corporation is
organized are:
A. To engage in scientific activities, to perform
scientific research and analysis, to conduct management and consulting services
for government agencies and private industry, with respect to four major areas
of specialty, namely: Integrated Logistics Support, Management Systems, Systems
Evaluation, and Operations Research.
B. To do all things lawful, necessary or incident to the
accomplishment of the purposes set forth above; to exercise all lawful powers
now possessed by Virginia corporations of similar character; to enter into
partnerships or joint ventures, and to engage in any business in which a
corporation organized under the laws of Virginia may engage, except any business
that is required to be specifically set forth in the Articles of Incorporation.
<PAGE>
2
C. The objects, powers and purposes specified in any
clause or paragraph hereinbefore contained shall be construed an objects and
powers in furtherance and not in limitation of the general powers conferred upon
corporations by the laws of the Commonwealth of Virginia; and it is hereby
expressly provided that the foregoing enumeration of specific powers shall in no
wise limit or restrict any other power, object or purpose of the Corporation or
in any manner affect any general powers or authority of the corporation.
3. The aggregate number of shares which the Corporation shall
have authority to issue and the par value per share are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS NUMBER OF SHARES PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock 500,000 $.10
- --------------------------------------------------------------------------------
</TABLE>
Each share of Common Stock shall have full voting rights.
4. The post office address of the initial registered office is
4031 Chain Bridge Road, Fairfax, Virginia, 22030. The name of the city in which
the initial registered office is located is the City of Fairfax. The name of its
initial registered agent is Stuart H. Gary, who is a member of the Virginia
State Bar, a resident of the Commonwealth of Virginia, and whose business
address is the same as that of the Registered office.
5. The number of directors constituting the initial Board of
Directors is five (5) and the names and addresses of the persons who are to
serve as the initial directors are as follows:
<PAGE>
3
1. John A. Scanga
10107 Springlane Terrace
Fairfax, Virginia 22030
2. C. James Christianson
11711 Stoney Creek Road
Rockville, Maryland 20854
3. Frederick D. Callison
2400 Holt Street
Vienna, Virginia 22180
4. Jack Aalseth
2804 Greenway Boulevard
Falls Church, Virginia
5. Jim Ziccarelli
9110 Redbridge Road
Richmond, Virginia 23235
6. In the absence of actual fraud, no contract or other
transaction of the Corporation shall be affected by the fact that any of the
directors or officers of the Corporation are in any way interested, in or
connected with any other party to such contract or transaction, or are
themselves parties to or interested in such contract or transaction. The fact of
membership in the Board of Directors shall not disqualify any director from
rendering unusual or special services to the Corporation and any director who
may be an officer, agent, or employee of the Corporation and who may as such
officer, agent, or employee render services to the Corporation otherwise than in
his capacity as director shall not be precluded from receiving compensation
appropriate to the value of such services; and the Board of Directors may in its
discretion cause such compensation to be paid or provided. Any and all directors
of the Corporation who are so interested in, or so connected with, such other
party or such contract or transaction
<PAGE>
4
may be counted in determining the presence of a quorum and may vote at any
meeting of the Board of Directors which shall authorize or ratify any such
contract or transaction, with like force and effect as if they are not so
interested or connected. No ratification by stockholders of any of the aforesaid
contracts or transactions shall be necessary to the validity thereof.
7. The Corporation shall indemnify each of its officers and
directors, whether or not then in office (and his executor, administrator and
heirs) against all reasonable expenses actually and necessarily incurred by him
in connection with the defense of any litigation to which he may have been made
a party because he is or was a director or officer of the Corporation. He shall
have no right to reimbursement, however, in relation to matters as to which he
has been adjudged liable to the Corporation for negligence or misconduct in the
performance of his duties. The right to indemnity for expenses shall also apply
to expenses of suits which are compromised or settled if the court having
jurisdiction of the action shall approve such settlement.
The foregoing right of indemnification shall be in addition to,
and not exclusive of, all other rights to which such director or officer may be
entitled.
8. There shall be no preemptive rights of any stockholder to
acquire unissued shares of the Corporation.
Dated: July 7, 1976.
/s/ DIANE B. WOOD
------------------------------
Name: Diane B. Wood
Title: Incorporator
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND,
September 5, 1978
The accompanying articles having been delivered to the State
Commission on behalf of Evaluation Research Corporation and the Commission
having found that the articles comply with the requirements of law and that all
required fees have been paid, it is ORDERED that this CERTIFICATE OF AMENDMENT
be issued, and that this order, together with the articles, be admitted to
record in the office of the Commission; and that the corporation have the
authority conferred on it by law in accordance with the articles, subject to the
conditions and restrictions imposed by law.
Upon completion of such recordation, this order and the articles
shall be forwarded for recordation in the office of the clerk of the Circuit
County, Fairfax County.
STATE CORPORATION COMMISSION
By: /s/ THOMAS P. HARWOOD, JR.
------------------------------
Commissioner
VIRGINIA:
In the Clerk's Office of the Circuit Court, Fairfax County
The foregoing certificate (including the accompanying articles)
has been duly recorded in my office this 15th day of Sept. 1978 and is now
returned to the State Corporation Commission by certified mail.
By: /s/ LINDA C. CAPO, DEPUTY
-----------------------------
Clerk
<PAGE>
ARTICLES OF AMENDMENT
EVALUATION RESEARCH CORPORATION
Evaluation Research Corporation hereby adopts the following
Amendments to its Articles of Incorporation:
1. The capitalization as set forth in the original Articles of
Incorporation is hereby changed as follows:
"There shall be one class of stock -- Class A Common Stock, and
there shall be 6,000,000 shares authorized for issuance at a par value of $.025
per share. Each share of common stock shall have full voting rights."
2. A new article shall be added to the existing Articles of
Incorporation, said new Article to be Article 9 and shall read as follows:
"9. Classification of Directors. There shall be two classes of
Directors, Class A and Class B. Class A Directors elected in July, 1978, shall
serve a two-year (2) term until the annual meeting in July, 1980. Class B
Directors elected in July, 1978, shall serve a one-year (1) term until the
annual meeting in July, 1979. All Directors elected commencing with the annual
meeting in July, 1979, shall be elected for a two-year (2) term. The number of
directors shall be the number stated in the by-laws, but shall always exceed
three (3)."
The Board of Directors of Evaluation Research Corporation
approved the above changes as in the best interests of the corporation at a
meeting duly called for said purpose on May 4, 1978. Notice was given by United
States Mail to all shareholders entitled to vote thereon on June 22, 1978, that
the above changes in the Articles would come before the Shareholders at the
Annual Meeting and a copy of the proposed changes was included in said Notice.
At the annual meeting of the Shareholders held on July 18, 1978, out of a total
of 235,285 shares outstanding, 216,595 shares were represented either in person
or by proxy and the vote in favor of the above amendments was 216,095, the vote
against was 500. The above vote
<PAGE>
2
represented 99.76% of shares voted were in favor and 91.84% of all outstanding
shares were voted in favor of said amendments.
Respectfully submitted,
/s/ JACK E. AALSETH
-------------------------------
Name: Jack E. Aalseth
Title: President
/s/ CONWAY CHRISTIANSON
-------------------------------
Name: Conway Christianson
Title: Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
APPOINTMENT OF REGISTERED AGENT AND ESTABLISHMENT OF REGISTERED OFFICE
EXPLANATION OF THIS FORM: Every corporation doing business in Virginia has a
registered agent and a registered office. A change can be made only by filing
this Form 18. A new Form 18 must be filed whenever there is a change in the name
or business address of the agent or whenever the agent dies, resigns or ceases
to be qualified. Form 18A must be filed when a corporation changes its name.
The registered agent is the person to whom official communications are sent and
on whom legal process is served. It is his duty to forward all such papers to
the proper offices of the corporation. He should not be appointed without his
consent in writing.
The agent once appointed remains the agent until his successor is appointed. IT
IS IMPORTANT FOR THE CORPORATION TO KNOW AT ALL TIMES WHO ITS REGISTERED AGENT
IS.
DEFINITION OF WORDS: A new appointment does not become legally effective
until this form has been filed by the Clerk of the State Corporation Commission.
The word "OLD" will be used to describe the agent who remains the agent until
this form has been filed. The word "NEW" will be used to describe the agent who
will be the agent after this form has been filed. (OF COURSE THE "OLD" AGENT MAY
BE THE SAME PERSON AS THE "NEW" AGENT) The same terminology will apply to the
registered office.
STATEMENT
1. The name of the corporation is: EVALUATION RESEARCH CORPORATION
2. The corporation is incorporated under the laws of the state of VIRGINIA
3. The name and address of the OLD registered agent and the OLD registered
office were:
STUART H. GRAY
4031 CHAIN BRIDGE ROAD
FAIRFAX, VIRGINIA 22030
4. Its NEW registered agent is a resident of Virginia. His name is: STUART H.
GRAY [ITEM 4 MUST BE COMPLETED EVEN IF SAME IS SHOWN IN ITEM 3].
5. The registered address of its NEW registered office is the same as the
address of the Business Office of the NEW registered agent.
That address is: 4041 UNIVERSITY DRIVE, SUITE 200, FAIRFAX, VA. 22030 ,VA.
---------------------------------------------- ----------
(Number) (Street) (Post Office) (Zone)
<PAGE>
2
6. The NEW registered agent is [ ] an officer of the corporation or [ ] a
director of the corporation or [X] a member of the Virginia State Bar.
[Check the applicable square or squares]
If an officer, his title is:
7. The new agent was appointed and the new office established by a resolution
duly adopted by the board of directors of the corporation.
8. Location of OLD and NEW registered offices: [INSTRUCTION FOR ITEM 8: No
place in Virginia is located in both a city and a county. (This is not true
of any other state in the United States.) For jurisdictional purposes in
bringing lawsuits, serving process, filing papers, etc., it is necessary to
know which city or county the registered office is in. (If you do not know
the name of the city or county, ask your registered agent to inform you.)
Be sure to insert the words "city" or, or "county of" because some cities
and counties have the same name.)
(A) The OLD registered office was located in the CITY of FAIRFAX
----------------
(City or County)
(B) The NEW registered office was located in the CITY of FAIRFAX
----------------
(City or County)
I declare under the penalties of perjury that the facts stated herein are true.
EVALUATION RESEARCH CORPORATION
-------------------------------
(Name of Corporation)
By
-----------------------------
Title
This statement must be executed in the name of the corporation by the
chairman or vice chairman of the board of directors, the president or a
vice-president and NOT BY ANY OTHER OFFICER. The registered agent may sign this
statement if he changes his business address, and by signing, certifies that a
copy has been mailed to the corporation.
FEES: Send one, two or three separate checks for fees of $1.00 each in
accordance with the fee schedule on the BACK of this form.
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND,
November 9, 1979
The accompanying articles having been delivered to the State
Commission on behalf of Evaluation Research Corporation and the Commission
having found that the articles comply with the requirements of law and that all
required fees have been paid, it is ORDERED that this CERTIFICATE OF AMENDMENT
be issued, and that this order, together with the articles, be admitted to
record in the office of the Commission; and that the corporation have the
authority conferred on it by law in accordance with the articles, subject to the
conditions and restrictions imposed by law.
Upon completion of such recordation, this order and the
articles shall be forwarded for recordation in the office of the clerk of the
Circuit County, Fairfax County.
STATE CORPORATION COMMISSION
By: /s/ THOMAS P. HARWOOD, JR.
------------------------------
Commissioner
VIRGINIA:
In the Clerk's Office of the Circuit Court, Fairfax County
The foregoing certificate (including the accompanying
articles) has been duly recorded in my office this 29th day of November 1979 and
is now returned to the State Corporation Commission by certified mail.
By: /s/ JAMES E. HOOFNAGLE
--------------------------
Clerk
<PAGE>
AMENDMENT OF THE ARTICLES OF INCORPORATION
OF
EVALUATION RESEARCH CORPORATION
The following is the text of the article of amendment duly
adopted by said corporation in the manner herein below set forth:
"10. STOCK OPTIONS
The Board of Directors shall have the authority to grant and
issue options for the purchase of shares of the Company to such individuals and
entities, including employees and officers of the company, on such terms and
conditions and for such consideration as it deems in the best interest of the
Company."
On July 11, 1979 the Board of Directors of Evaluation Research
Corporation met at a properly called meeting to consider a duly proposed motion
to amend the Articles of Incorporation for said company, the text of which is
set out above, and to refer such matter to the shareholders to approval. After
consideration of the motion, the Board found that said motion was in the best
interests of the corporation and adopted it unanimously on July 11, 1979. The
Board then directed that notice be given to the shareholders of record entitled
to vote on this matter.
There were 1,099,298 shares outstanding of the said
corporation. 1,099,298 shares were entitled to vote on said matter. None is
entitled to vote as a class. Notice was given July 12, 1979 to the shareholders
entitled to vote on this matter, accompanied by a copy of the proposed amendment
according to the notice provisions of the Va. Code, stating that the
shareholders' meeting to decide this matter would be held on August 9, 1979.
On August 9, 1979 the shareholders met to vote on the adoption
of said languages amending the articles of incorporation. Upon properly proposed
motion, said language was adopted by the shareholders as the article of
amendment to the Articles of Incorporation. There were 801,026 votes in favour
of adoption, 0 votes opposed to adoption of the said amendment.
/s/ JACK E. AALSETH
----------------------------
President
<PAGE>
2
/s/ CONWAY CHRISTIANSON
----------------------------
Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND,
July 16, 1976
The accompanying articles having been delivered to the State
Commission on behalf of Evaluation Research Corporation and the Commission
having found that the articles comply with the requirements of law and that all
required fees have been paid, it is ORDERED that this CERTIFICATE OF
INCORPORATION be issued, and that this order, together with the articles, be
admitted to record in the office of the Commission; and that the corporation
have the authority conferred on it by law in accordance with the articles,
subject to the conditions and restrictions imposed by law.
Upon the completion of such recordation, this order and the
articles shall be forwarded for recordation in the office of the clerk of the
Circuit County, Fairfax County.
STATE CORPORATION COMMISSION
By: /s/ THOMAS P. HARWOOD JR.
-----------------------------
Commissioner
VIRGINIA:
In the Clerk's Office of the Circuit Court, Fairfax County
The foregoing certificate (including the accompanying
articles) has been duly recorded in my office this 23rd day of July 1976 and is
now returned to the State Corporation Commission by certified mail.
By: /s/ LINDA C. CAPO
-----------------------
Clerk
<PAGE>
Commonwealth of Virginia
State Corporation Commission
I Certify the Following from the Records of the Commission:
The foregoing is a true copy of all documents constituting the charter of Anteon
Corporation.
Nothing more is hereby certified.
Signed and Sealed at Richmond on this Date:
July 28, 1999
/s/ JOEL H. PECK
--------------------------------------------
Joel H. Peck, Clerk of the Commission
<PAGE>
Exhibit 3.2
BYLAWS OF
ANTEON CORPORATION
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE.
The principal office of the corporation in the Commonwealth of Virginia shall be
located at 3211 Jermantown Road, Fairfax, Virginia 22030. The corporation may
have other offices, either within or without the Commonwealth of Virginia, as
the board of directors may designate or as the business of the corporation may
require from time to time.
SECTION 2. REGISTERED OFFICE.
The registered office of the corporation required by the Virginia Business
Corporation Law to be maintained in the Commonwealth of Virginia shall be
Beverly L. Crump, 11 South Twelve Street, Richmond, Virginia 23219.
ARTICLE II
SHAREHOLDERS' MEETINGS
SECTION 1. ANNUAL MEETING.
The annual meeting of the shareholders shall be held at such place on such date,
and at such time as the Board of Directors shall each year fix, which date shall
be within thirteen (13) months subsequent to the last annual meeting of
shareholders, not inconsistent with Virginia law, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting is a legal holiday, the meeting
will be held on the next succeeding business day. If the election of directors
shall not be held on the day designated in this agreement for the annual meeting
of the shareholders, or at any adjournment of the meeting, the board of
directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as is convenient.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the president or the board of
directors, or by the president at the request of the holders of not less than
fifty (50) percent of all of the outstanding shares of the corporation entitled
to vote at the meeting.
1
<PAGE>
The special meetings will then be held on a date established by the chairman or
president not more than ninety (90) days after the Secretary has notified the
board of directors.
For all special meetings, the President or the board of directors shall have the
power to determine (within the limitations permitted by law) the form, content,
means of communication and timing of notice of such meeting.
SECTION 3. PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the principal office of the
corporation except that the president, secretary or board of directors may
designate any place, either within or without the Commonwealth of Virginia, as
the place for the holding of any meeting, but any meeting may be adjourned to
reconvene at any place designated by vote of a majority of the shares
represented.
SECTION 4. NOTICE OF MEETINGS.
Written or printed notice stating the place, day and hour of the meeting and, in
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten (10) days (unless a longer period
is required by law) nor more than sixty (60) days before the date of the
meeting, or in the case of a merger, consolidation, share exchange, dissolution
or sale, lease, or exchange of all or substantially all of the companies'
assets, not less than twenty (20) days nor more then sixty (60) days before the
meeting, either personally or by mail, by or at the direction of the president,
or the secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at the meeting. If mailed, the notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his, her, or its address as it appears on the
stock record books of the corporation, with postage prepaid. If any meeting of
the shareholders is adjourned to another time or place, no notice of adjournment
need be given other than by announcement at the meeting at which the adjournment
is taken.
SECTION 5. MEETING OF ALL SHAREHOLDERS
If all of the shareholders will meet at any time and place and consent to the
holding of a meeting at the time and place, the meeting will be valid without
call or notice, and at this meeting any corporate action may be taken.
SECTION 6. DIRECTOR NOMINATION PROCESS
All nominations for election as director shall be included in the proxy material
accompanying the notice of the annual meeting or any special meeting.
2
<PAGE>
Nominations for directors proposed by the nominating committee of the Board of
Directors shall be made in the proxy material which shall accompany the notice
of annual meeting or any special meeting.
There shall be no nominations allowed from the floor of any annual meeting or
special meeting for individuals to fill vacancies in the Board of Directors.
It shall require a petition signed by shareholders representing at least ten
percent (10%) of the total issued and outstanding stock of the company to place
a name in nomination in addition to those proposed by the nominating committee
of the Board for any annual or special meeting at which directors are to be
elected. Said petition along with appropriate biographical information of the
individual must be submitted to the secretary at least ninety (90) days prior to
the date established by the Board for the mailing of such material. The
nominating committee shall take such additional steps as are necessary to
establish the qualifications of the proposed individual.
SECTION 7. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation may fix in advance a
date as the record date for any determination of shareholders, this date in any
case not to be more than sixty (60) days, and not less than ten (10) days, or in
the case of a merger, consolidation, share exchange, dissolution or sale, lease,
or exchange of assets, not less than twenty (20) days, immediately preceding the
date of this meeting. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the board of
directors declaring the dividend is adopted, as the case may be, will be the
record date for the determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, the determination will apply to any adjournment of the
meeting.
SECTION 8. VOTING LISTS.
The officer or agent having charge of the transfer books or shares of the
corporation will make, within twenty (20) days after the record date for a
meeting of shareholders or ten (10) days before the meeting, whichever is
earlier, a complete list of the shareholders entitled to vote at the meeting,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of the shareholder. For ten (10) days before the meeting,
the list will be kept on file at the registered office of the corporation and
will be open to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. The list will
also be produced and kept open at the time and place of the meeting and may be
inspected by any shareholder during the whole
3
<PAGE>
time of the meeting. The original share ledger or transfer book, or a duplicate
kept in Virginia will be prima facie evidence as to the shareholders who are
entitled to examine the list, share ledger, or transfer book or to vote at any
meeting of shareholders.
SECTION 9. QUORUM.
Except as otherwise provided by law, a majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders and a majority of votes cast at
any meeting at which a quorum is present shall be decisive of any motion or
election. Though less than a quorum of the outstanding shares are represented at
a meeting, a majority of the shares represented may adjourn the meeting from
time to time without further notice. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote will be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by the Code of Virginia, the articles of
incorporation, or these bylaws. At an adjourned meeting at which a quorum is
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. Withdrawal of shareholders
from any meeting will not cause failure of a duly constituted quorum at that
meeting.
SECTION 10. MANNER OF ACTING.
Except as otherwise provided in the articles of incorporation, in these bylaws,
required by the Code of Virginia or in any agreement among shareholders, the act
of the holders of a majority of the shares present at a meeting at which a
quorum is present shall be the act of the shareholders.
SECTION 11. CONDUCT OF MEETINGS.
The chairman or president, and in their absence, the executive vice-president,
shall call the meeting of the shareholders to order and shall act as chairperson
of the meeting, and the secretary of the corporation shall act as secretary of
all the meetings of the shareholders. In the absence of the secretary, the
presiding officer may appoint any other person to act as secretary of the
meeting.
SECTION 12. PROXIES.
At all meetings of shareholders, a shareholder entitled to vote may vote by
proxy appointed in writing by the shareholder or by his or her duly authorized
attorney-in-fact. The proxy shall be filed with the secretary of the corporation
before or at the time of the meeting. No proxy shall be valid after 11 months
from the date of its execution, unless otherwise provided in the proxy. The
Board of Directors, in advance of any annual or special meeting of the
shareholders, may prescribe additional regulations concerning the manner of
execution and filing of proxies and the validation of the same, which are
intended to be voted at any such meeting.
4
<PAGE>
SECTION 13. VOTING OF SHARES.
Each shareholder entitled to vote in accordance with the terms and provisions of
the Articles of Incorporation and these bylaws shall be entitled to one (1)
vote, in person or by proxy, for each share of stock entitled to vote held by
such shareholder. Upon the demand of any shareholder, the vote for Directors and
upon any questions before the meeting shall be by ballot.
SECTION 14. VOTING OF SHARES BY CERTAIN HOLDERS.
Shares of the corporation held by the corporation in a fiduciary capacity may be
voted and will be counted in determining the total number of outstanding shares
entitled to vote at any given time.
Shares registered in the name of another domestic or foreign corporation may be
voted by any officer, agent, proxy or other legal representative authorized to
vote these shares under the law of incorporation of the corporation. The
corporation may treat the president or other person holding the position of
chief executive officer of the other corporation as authorized to vote the
shares, together with any other person indicated and any other holder of an
office indicated by the corporate shareholder to the corporation as a person or
an office authorized to vote the shares. The persons and offices indicated will
be registered by the corporation on the transfer books for shares and included
in any voting list prepared in accordance with Section Seven of this article.
Shares registered in the name of a deceased person, a minor ward, or a person
under legal disability may be voted by his or her administrator, executor, or
court-appointed guardian, either in person or by proxy, without a transfer of
the shares into the name of the administrator, executor, or court appointed
guardian. Shares registered in the name of a trustee may be voted by the
trustee, either in person or by proxy.
Shares registered in the name of a receiver may be voted by the receiver, and
shares held by or under the control of receiver may be voted by the receiver
without the transfer of the shares into his or her name, if authority to do so
is contained in an appropriate transfer order of the court by which the receiver
was appointed.
Shares standing in the names of two or more persons shall be voted or
represented in accordance with the vote or consent of the majority of the
persons in whose names the shares stand. If only one such person is present in
person or by proxy, he may vote all the shares, and all the shares standing in
the names of such persons are represented for the purpose of determining a
quorum. This Bylaw applies to the voting of shares by two or more
administrators, executors, trustees, or other fiduciaries, unless the instrument
or order of court appointing them otherwise directs.
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A shareholder whose shares are pledged will be entitled to vote the shares until
the shares have been transferred into the name of the pledgee, and the pledgee
will then be entitled to vote the shares transferred.
SECTION 15. INSPECTORS.
At any meeting of shareholders, the chairman of the meeting shall, appoint one
or more persons as inspectors for the meeting, unless an inspector or inspectors
will have been previously appointed for the meeting in the manner provided by
the bylaws of the corporation.
The inspectors will determine and report the number of shares represented at the
meeting, based on their determination of the validity and effect of proxies;
count all votes and report the results; and do any other acts that are proper to
conduct the election and voting with impartiality and fairness to all the
shareholders.
Each report of an inspector will be in writing and signed by him or her or by a
majority of them if there be more than one inspector acting at the meeting. If
there is more than one inspector, the report of the majority will be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and results of the voting will be prima facie
evidence of the number of shares and results of voting.
SECTION 16. WAIVER OF NOTICE OF SHAREHOLDERS.
Whenever any notice is required to be given to any shareholder of the
corporation under the articles of incorporation or bylaws or any provision of
law, a waiver of the notice in writing, signed at any time, whether before or
after the time of meeting, by the shareholder entitled to the notice, shall be
deemed equivalent to the giving of the notice. The attendance of a shareholder
at a meeting shall constitute a waiver of notice of the meeting, except where a
shareholder attends a meeting and objects to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 17. INFORMAL ACTION BY SHAREHOLDERS.
Any action required or permitted by the articles of incorporation or bylaws or
any provision of law to be taken at any annual or special meeting of the
shareholders, may be taken without a meeting and without action by the board of
directors, if a consent in writing, setting forth the action taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter of the action.
SECTION 18. VOTING BY BALLOT.
Voting on any question or in any election may be by voice unless the presiding
officer orders or any shareholder demands that voting be by ballot.
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ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS.
Subject to the limitations of the articles of incorporation, these bylaws, and
the Code of Virginia concerning corporate action that must by authorized or
approved by the shareholders of the corporation, all corporate powers will be
exercised by or under the authority of the board of directors, and the business
and affairs of the corporation will be controlled by the board of directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS.
The board of directors shall set the number of directors which shall be not less
than three (3) nor more than fifteen (15) persons who need not be shareholders
of the corporation. The number of directors within the above range may be
increased or decreased by the board of directors. Directors of the corporation
will be elected at the annual meeting of shareholders, or at a meeting held
instead of it as provided in Article II and will serve until the next succeeding
annual meeting and until their successors have been elected and qualified. The
Board shall annually elect a chairman from its members and the chairman will
preside at all meetings of the Corporation, unless the chairman decides to
assign this duty to the president.
SECTION 3. REGULAR MEETINGS.
A regular meeting of the board of directors shall be held without other notice
than this bylaw, immediately after, and at the same place as, the annual meeting
of shareholders, and each adjourned session of the meeting. The board of
directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than the resolutions.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the board of directors may be called by or at the request of
the president, secretary or any director. The person or persons authorized to
call special meetings of the board of directors may fix the place for holding
any special meeting of the board of directors called by them.
SECTION 5. NOTICE.
Notice need not be given of regular meetings of the board, nor need notice by
given of adjourned meetings. Notice of any special meeting of the board of
directors shall be given in writing delivered in person or by first-class mail
or telegram or cablegram at
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least two (2) days before the date of the meeting to each director. Whenever any
notice is required to be given to any director of the corporation under the
provisions of these bylaws or under the provisions of the articles of
incorporation or under the provisions of any statute, a waiver of the notice in
writing, signed at any time, whether before or after the time of meeting, by the
director entitled to notice, shall be deemed equivalent to the giving of notice.
The attendance of a director at a meeting shall constitute a waiver of notice of
the meeting, except where a director attends a meeting and objects to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of the meeting.
SECTION 6. PARTICIPATION BY TELEPHONE.
Members of the board may participate in a meeting of the board by means of a
conference telephone or similar communications equipment by which all persons
participating can hear each other at the same time, and participation by these
means will constitute presence in person at a meeting.
SECTION 7. QUORUM.
Except as otherwise provided by law or by the articles of incorporation or these
bylaws, a majority of the number of directors fixed in accordance with Section
Two of this Article III shall constitute a quorum for the transaction of
business, and the acts of a majority of directors present at a meeting at which
a quorum is present will constitute the acts of the board of directors. If, at
any meeting of the board of directors, less than a quorum is present, a majority
of those present may adjourn the meeting until a quorum is present.
SECTION 8. CONDUCT OF MEETINGS.
The chairman or president, and in their absence, an executive vice-president,
shall call meetings of the board of directors to order and shall manage the
meeting agenda. The secretary of the corporation shall act as secretary of all
meetings of the board of directors, but in the absence of the secretary, the
presiding officer may appoint any assistant secretary or any director or other
person present to act as secretary of the meeting.
SECTION 9. REMOVAL.
At any regular meeting of shareholders, or at any special meeting called for
such a purpose, any director or directors may be removed from office, with or
without cause, by the affirmative vote of the holders of a majority of the
outstanding shares then entitled to vote at an election of directors, except
that no director will be removed at a meeting of shareholders unless the notice
of meeting will state that a purpose of the meeting is to vote on removal of one
or more directors named in the notice, and then only the named director or
directors may be removed at that meeting. If a director has been elected by a
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class or series of shares, he or she may be removed only by the shareholders of
that class or series.
New directors may be elected by the shareholders for the unexpired terms of
directors removed from office at the same meetings at which removal is voted. If
the shareholders fail to elect persons to fill the unexpired terms of removed
directors; the terms will be considered vacancies to be filled by the remaining
directors as provided in Section Twelve (b) of this Article III.
SECTION 10. RESIGNATION.
A director may resign at any time by giving written notice to the board of
directors, the chairman, the president or the secretary of the Corporation.
Unless otherwise specified in the notice, the resignation shall take effect upon
receipt thereof by the board of directors or such Officer, and the acceptance of
the resignation shall not be necessary to make it effective.
SECTION 11. COMPENSATION.
The directors may be paid their reasonable expenses of attendance at each
meeting of the board of directors or committee thereof and may be paid a fixed
sum for attendance at each meeting and/or an annual stipend. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
SECTION 12. VACANCIES.
(a) A vacancy in the board of directors will exist on the happening of any
of the following events:
(1) A director dies, resigns, or is removed from office;
(2) The authorized number of directors is increased without the
simultaneous election of a director or directors to fill the
newly authorized position.
(3) The shareholders at any annual, regular, or special meeting at
which directors are to be elected, elect less than the number
of directors authorized to be elected at that meeting.
(4) The board of directors declares vacant the office of a
director who has been adjudicated of unsound mind or has been
finally convicted of a felony or who, within 60 days after
notice of his or her election to the board, neither accepts
the office in writing nor attends any duly convened meeting of
the board of directors.
A reduction in the authorized number of directors does not remove any director
from office before the expiration of his or her term of office.
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(b) A vacancy in the board of directors, except a vacancy occurring by the
removal of a director, may be filled by the vote of a majority of the remaining
directors, even though less than a quorum is present. Each director so elected
will hold office for the unexpired term of his or her predecessor in office. Any
directorship that is to be filled as a result of an increase in the number of
directors must be filled by election at an annual or special meeting of
shareholders called for that purpose.
SECTION 13. INFORMAL ACTION BY DIRECTORS.
Any action required or permitted by the articles of incorporation or these
bylaws or any provision of law to be taken by the board of directors at a
meeting or by resolution may be taken without a meeting, if a consent in
writing, setting forth the action taken, shall be signed by all of the directors
then in office.
SECTION 14. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the board of
directors or a committee of the board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless he or she shall
file his or her written dissent to the action with the person acting as the
secretary of the meeting before adjournment or shall forward the dissent by
registered or certified mail to the secretary of the corporation immediately
after the adjournment of the meeting at which such minutes are approved. The
right to dissent shall not apply to a director who voted in favor of the action.
SECTION 15. COMMITTEES.
The board of directors by resolution adopted by the affirmative vote of the
directors, as required by Section Seven of this Article III, may designate one
or more committees and appoint members of the board to serve on any one or more
of these committees. The board of directors may also appoint designated officers
of the Corporation or its affiliates to serve as non voting ad hoc members of
committees for advisory purposes only who will serve at the pleasure of the
board. Each committee will have at least two members who will serve at the
pleasure of the board.
A majority of any committee will constitute a quorum, and a majority of a quorum
is necessary for committee action. Each committee, to the extent provided by the
board in a resolution, will have and exercise the authority of the board of
directors in the management of the corporation. However, a committee may not
authorize distributions; approve or recommend to shareholders any act required
by statute to be approved by shareholders; fill vacancies on the board or on any
of its committees; elect or remove officers or fix the compensation of any
member of the committee; adopt, amend, or repeal the bylaws; approve a plan of
merger not requiring shareholder approval; authorize or approve the
reacquisition of shares, except according to a general formula or method
prescribed by the board; authorize or approve the issuance or sale, or contract
for sale, of
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shares or determine the designation and relative rights, preferences, and
limitations of a series of shares, except that the board may direct a committee
to fix the specific terms of the issuance or sale or contract for sale or the
number of shares to be allocated to particular employees under an employee
benefit plan; or amend, alter, repeal, or take action inconsistent with any
resolution or action of the board of directors. The board of directors will fill
vacancies in the membership of any committee.
Any committee may keep a written record of its proceedings and will submit any
such record or otherwise make a written or oral report to the whole board at
each regular meeting and at any other times that may be requested by the board.
However, failure to submit this record, or failure of the board to approve any
action indicated will not invalidate any action carried out by the corporation.
A committee may act by unanimous consent in writing without a meeting and each
committee, by a majority vote of its members, will determine the time and place
of meetings and the required notice.
The board of directors may elect one or more of its members as alternate members
of any committee who may take the place of any absent member or members at any
meeting of the committee, upon request by the president or upon request by the
chairperson of the meeting. Each committee shall fix its own rules governing the
conduct of its activities and shall make reports to the board of directors of
its activities as the board of directors may request.
ARTICLE IV
OFFICERS
SECTION 1. ENUMERATION OF OFFICERS.
The principal officers of the corporation shall include a chairman, president
and a secretary and may include one or more executive vice-presidents, one or
more senior vice-presidents, certain elected vice-presidents and a treasurer.
Other officers and assistant officers as may be deemed necessary may be elected
or appointed by the board of directors.
SECTION 2. ELECTION AND TERM OF OFFICE.
The principal officers of the corporation to be elected by the board of
directors shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
shareholders. If the election of officers shall not be held at the meeting, the
election shall be held as soon thereafter as convenient. Each officer shall hold
office until his or her successor shall have been duly elected or until his or
her death or until he or she shall resign or shall have been removed in the
manner provided below.
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SECTION 3. REMOVAL.
Any officer or agent elected or appointed by the board of directors may be
removed, with or without cause, by the board of directors but removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment shall not of itself create any rights to continued
employment or other contract rights.
SECTION 4. VACANCIES.
A vacancy in any principal office because of death, resignation, removal,
disqualification or otherwise may be filled by the board of directors for the
unexpired portion of the term, if a term has been specified.
SECTION 5. PRESIDENT; POWERS AND DUTIES.
Subject to any supervisory duties that may be given by the board of directors to
any chairman of the board, the president shall be the principal executive
officer of the corporation and shall, in general, supervise and control the
business and affairs of the corporation. The chairman or president shall, when
present, preside at all meetings of the shareholders.
In the absence of the chairman of the board, or if the chairman so directs, the
president will preside at all meetings of the board of directors at which he or
she is present.
The president shall have authority to appoint such agents and employees of the
corporation as the president shall deem necessary, to prescribe their powers,
duties and compensation, and to delegate authority to them. The agents and
employees shall hold office at the discretion of the president. The president
shall have authority to sign, execute and acknowledge, on behalf of the
corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases,
reports and all other documents or instruments necessary or proper to be
executed in the course of the corporation's regular business and, except as
otherwise provided by law, he or she may authorize any officer, vice-president,
or employee of the corporation to sign, execute and acknowledge documents or
instruments on behalf of the corporation. The president will also make reports
to the board of directors and shareholders and in general, he or she shall
perform all duties incident to the office of president and any other duties that
may be prescribed by the board of directors.
SECTION 6. EXECUTIVE VICE-PRESIDENT AND CHIEF OPERATING OFFICER; POWERS AND
DUTIES.
In the absence of the president or in the event of the president's death,
inability or refusal to act, the executive vice-president and chief operating
officer shall, until such time as a new president is duly elected by the board
of directors, perform the duties of the
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president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president.
SECTION 7. SECRETARY; POWERS AND DUTIES.
The secretary shall (a) keep the minutes of the shareholders' and of the board
of directors' meetings in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the corporation and see that the seal of the corporation is affixed
to all documents the execution of which on behalf of the corporation under its
seal is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the secretary by the shareholder; (e)
sign with the president or vice-president certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the board of directors; (f) certify the bylaws, resolutions of the shareholders
and board of directors and committees, and other documents of the corporation as
true and correct copies; (g) have general charge of the stock transfer books of
the corporation; and (h) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him or
her by the president or by the board of directors.
SECTION 8. TREASURER; POWERS AND DUTIES.
If required by the board of directors, the treasurer shall give a bond for the
faithful discharge of his or her duties in such sum and with such surety or
sureties as the board of directors shall determine. The treasurer shall have
charge and custody of and be responsible for all funds and securities of the
corporation, receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all moneys in the name of
the corporation in such banks, trust companies or other depositories as shall be
selected from time to time and in general perform all of the duties incident to
the office of treasurer and such other duties as from time to time may be
assigned to the treasurer by the president or by the board of directors.
SECTION 9. OTHER OFFICERS.
Other officers, including without limitation an assistant treasurer or
treasurers and an assistant secretary or secretaries may be appointed by the
board of directors and will exercise any powers and perform any duties that may
be delegated to them by the resolutions appointing them, or by subsequent
resolutions adopted by the board of directors.
SECTION 10. DELEGATION OF DUTIES.
In case of the absence or inability to act of any officer of the corporation,
the board of directors may delegate the duties of the officer to any other
officer or to any director.
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SECTION 11. SALARIES.
The salaries of the officers shall be fixed from time to time by the board of
directors and no officer shall be prevented from receiving his or her salary by
reason of the fact that he or she is also a director of the corporation and
receiving compensation for being a director.
ARTICLE V
CERTIFICATES FOR SHARES
SECTION 1. CERTIFICATES.
The issued shares of the corporation will be represented by certificates. The
certificates will be in any form determined by the board of directors, and will
be numbered and entered in the books of the corporation that they are issued.
Each certificate will (a) exhibit the registered holder's name and the number
and class of shares, and the designation of any series, that it evidences; (b)
state that the corporation is organized under the laws of Virginia, and (c) set
forth any other statements that may be required by resolution of the board of
directors or statute. Each certificate will be signed by the chief executive
officer or a vice-president and by the secretary or an assistant secretary, any
of whose signatures may be facsimile if the certificate is countersigned by a
transfer agent or registered by a registrar. In case any one or more of officers
who have signed or whose facsimile signatures appear on any certificate will
cease to be an officer or officers of the corporation, or an officer of the
transfer agent or registrar, before the certificate is issued and delivered, it
may nonetheless be issued and delivered with the same effect as if the officer
or officers had continued in office. No certificate will be issued for any share
until the share is fully paid.
SECTION 2. SUBSCRIPTIONS FOR STOCK.
Unless otherwise provided in the subscription agreement, subscriptions for
shares will be paid in full at any time, or in any installments and at any
times, that will be determined by the board of directors. In case of default in
the payment of any installment or call when payment is due, the corporation may
proceed to collect the amount due in the same manner as any debt due the
corporation.
SECTION 3. TRANSFERS.
Transfers of shares of the corporation will be made only on the books of the
corporation by the holder of record or by the holder's legal representative, who
will furnish proper evidence of authority to transfer, or by an attorney
authorized by power of attorney executed and filed with the secretary of the
corporation, and on surrender for cancellation of the certificate for these
shares. The corporation will maintain stock transfer books, and any transfer
will by registered only on request and surrender of the stock certificate
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representing the endorsed transferred shares. Additionally, the board of
directors may appoint one or more transfer agents or transfer clerks and one or
more registrars as custodians of the transfer books, and may require all
transfers to be made with and all share certificates to bear the signatures of
any of them.
SECTION 4. RESTRICTIONS ON TRANSFER.
Transfer of shares may be restricted by agreement among some or all of the
shareholders. There shall be clearly printed or typewritten across the face or
reverse side of the certificates of stock issued or to be issued by the
corporation a legend setting forth any restrictions upon the transfer of the
shares.
SECTION 5. LOST, DESTROYED OR STOLEN CERTIFICATES.
The corporation may provide for the issue of one or more new certificates in
lieu of any lost, stolen or destroyed certificates upon such evidence of loss,
theft or destruction as the corporation shall require and upon delivery to the
corporation of a bond of indemnity in such amount, upon such terms and with such
security as the corporation may require.
SECTION 6. CONSIDERATION FOR SHARES.
The shares of the corporation may be issued for such consideration as shall be
fixed from time to time by the board of directors, provided that any shares
having a par value shall not be issued for a consideration less than par value.
When payment of the consideration for which shares are to be issued shall have
been received by the corporation, the shares shall be deemed to be fully paid
and nonassessable by the corporation. No certificate shall be issued for any
share until such share is fully paid.
SECTION 7. OWNERSHIP.
The corporation may treat the holder of record of any share or shares as the
holder in fact, and shall not be bound to recognize any equitable or other claim
to or interest in any share or shares on the part of any other person, whether
or not it shall have express or other notice of the claim or interest, save as
expressly provided by law.
The corporation will have the absolute right to recognize as the owner of any
shares of stock issued by it, for all purposes, including, without limitation,
the voting of shares and the issuance and payment of dividends on or
distributions respecting shares, the person or persons in whose name the
certificate representing shares stands on the corporation's stock transfer
books. However, if a transfer of shares is made solely for the purpose of
furnishing collateral security, and if this fact is made known to the secretary
of the corporation, or to the corporation's transfer agent or transfer clerk,
the record entry of this transfer will state its limited nature.
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ARTICLE VI
CORPORATE ACTIONS
SECTION 1. CONTRACTS.
The board of directors may authorize any officer, employee or agent of the
corporation to enter into any contract or to execute and deliver any instrument
in the name of and on behalf of the corporation, and this authority may be
general or confined to specific instances.
SECTION 2. LOANS
When authorized by resolution of the board of directors, the corporation may
make loans of corporate funds to any of its directors, officers, employees, and
agents. However, no loan may be made if, after giving it effect; (a) the
corporation would be insolvent, or (b) the net assets of the corporation would
be less than zero or less than the maximum amount payable at the time of
distribution to shareholders having preferential rights in liquidation if the
corporation were then to be liquidated.
SECTION 3. CHECKS, DRAFTS, OR ORDERS.
All checks, drafts, or other orders for the payment of money by or to the
corporation, and all notes and other evidence of indebtedness issued in the name
of the corporation will be signed by an officer or officers, agent or agents of
the corporation and in any manner that will be determined by resolution of the
board of directors.
SECTION 4. BANK DEPOSITS.
All funds of the corporation not otherwise employed will be deposited to the
credit of the corporation in any banks, trust companies, or other depositaries
that the corporation may select.
SECTION 5. VOTING SECURITIES HELD BY THE CORPORATION.
Unless otherwise ordered by the board of directors, the president, or any
vice-president and the secretary or an assistant secretary of the corporation
will have authority to vote, represent, and exercise on behalf of the
corporation all rights incidental to any shares of any other corporation
standing in the name of the corporation. This authority may be exercised by the
designated officers in person or by proxy.
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ARTICLE VII
DIVIDENDS
The board of directors may from time to time declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and its articles of incorporation.
ARTICLE VIII
CORPORATE SEAL
The board of directors will adopt an official seal for the corporation, which
will be circular in form and be inscribed with the name of the corporation, and
the words "Commonwealth of Virginia" and "Corporate Seal." The majority of the
board of directors may alter the corporate seal. The official seal is affixed
hereto:
ARTICLE IX
FISCAL YEAR
Unless otherwise determined by the board of directors, the Fiscal year of the
corporation will be the calendar year and shall end on December 31 of each year.
ARTICLE X
AMENDMENTS
The power to alter, amend, or repeal the Bylaws and to make new Bylaws shall be
vested in the board of directors, but Bylaws made by the board of directors may
be repealed or changed, and new Bylaws made, by the shareholders, and the
shareholders may prescribe that any Bylaw made by them shall not be altered,
amended, or repealed by the directors.
ARTICLE XI
GOVERNING STATUTE
This corporation has been organized pursuant to and is governed by the laws of
the Commonwealth of Virginia.
Date: December 8, 1998
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Exhibit 4.1
================================================================================
ANTEON CORPORATION
Issuer
VECTOR DATA SYSTEMS, INC.
Guarantor
TECHMATICS, INC.
Guarantor
12% Senior Subordinated Notes Due 2009
---------------------
INDENTURE
Dated as of May 11, 1999
---------------------
IBJ WHITEHALL BANK & TRUST COMPANY
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
-------
310 (a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.10
(c) .............................. N.A.
311 (a) .............................. N.A.
(b) .............................. 7.11
(c) .............................. N.A.
312 (a) .............................. 2.05
(b) .............................. 11.03
(c) .............................. 11.03
313 (a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. N.A.
(c) .............................. N.A.
(d) .............................. N.A.
314 (a)(4) .............................. 4.11;
4.11; 11.02
(b) .............................. N.A.
(c)(1) .............................. N.A.
(c)(2) .............................. N.A.
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. N.A.
(f) .............................. N.A.
315 (a) .............................. N.A.
(b) .............................. N.A.
(c) .............................. N.A.
(d) .............................. N.A.
(e) .............................. N.A.
316 (a)(last sentence) ......................... N.A.
(a)(1)(A) .............................. N.A.
(a)(1)(B) .............................. N.A.
(a)(2) .............................. N.A.
(b) .............................. N.A.
317 (a)(1) .............................. N.A.
(a)(2) .............................. N.A.
(b) .............................. 2.04
318 (a) .............................. N.A.
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 Page
----
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions......................................... 1
SECTION 1.02. Other Definitions...................................30
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act.....................................30
SECTION 1.04. Rules of Construction...............................31
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating.....................................32
SECTION 2.02. Execution and Authentication........................32
SECTION 2.03. Registrar and Paying Agent..........................33
SECTION 2.04. Paying Agent To Hold Money in Trust.................34
SECTION 2.05. Securityholder Lists................................34
SECTION 2.06. Transfer and Exchange...............................34
SECTION 2.07. Replacement Securities..............................35
SECTION 2.08. Outstanding Securities..............................35
SECTION 2.09. Temporary Securities................................36
SECTION 2.10. Cancellation........................................36
SECTION 2.11. Defaulted Interest..................................36
SECTION 2.12. CUSIP Numbers ......................................37
SECTION 2.13. Issuance of Additional Securities...................37
ARTICLE 3
REDEMPTION
SECTION 3.01. Notices to Trustee..................................38
SECTION 3.02. Selection of Securities To Be
Redeemed..........................................38
SECTION 3.03. Notice of Redemption................................39
SECTION 3.04. Effect of Notice of Redemption......................40
SECTION 3.05. Deposit of Redemption Price.........................40
SECTION 3.06. Securities Redeemed in Part.........................40
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities...............................40
<PAGE>
2
SECTION 4.02. SEC Reports.........................................41
SECTION 4.03. Limitation on Indebtedness..........................41
SECTION 4.04. Limitation on Restricted Payments...................44
SECTION 4.05. Limitation on Restrictions on Dis-
tributions from Subsidiaries......................48
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock..................................50
SECTION 4.07. Limitation on Affiliate Transactions................55
SECTION 4.08. Limitation on the Sale or Issuance
of Capital Stock of Restricted
Subsidiaries......................................57
SECTION 4.09. Change of Control...................................58
SECTION 4.10. Future Guarantors...................................59
SECTION 4.11 Compliance Certificate..............................60
SECTION 4.12. Further Instruments and Acts........................60
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. When Company May Merge or Transfer
Assets............................................60
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default...................................62
SECTION 6.02. Acceleration........................................64
SECTION 6.03. Other Remedies......................................65
SECTION 6.04. Waiver of Past Defaults.............................65
SECTION 6.05. Control by Majority.................................65
SECTION 6.06. Limitation on Suits.................................66
SECTION 6.07. Rights of Holders To Receive Payment................66
SECTION 6.08. Collection Suit by Trustee..........................67
SECTION 6.09. Trustee May File Proofs of Claim....................67
SECTION 6.10. Priorities..........................................67
SECTION 6.11. Undertaking for Costs...............................68
SECTION 6.12. Waiver of Stay or Extension Laws....................68
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee...................................68
SECTION 7.02. Rights of Trustee...................................70
SECTION 7.03. Individual Rights of Trustee........................70
<PAGE>
3
SECTION 7.04. Trustee's Disclaimer................................70
SECTION 7.05. Notice of Defaults..................................71
SECTION 7.06. Reports by Trustee to Holders.......................71
SECTION 7.07. Compensation and Indemnity..........................71
SECTION 7.08. Replacement of Trustee..............................72
SECTION 7.09. Successor Trustee by Merger.........................73
SECTION 7.10. Eligibility; Disqualification.......................73
SECTION 7.11. Preferential Collection of Claims
Against Company...................................74
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Securities;
Defeasance........................................74
SECTION 8.02. Conditions to Defeasance............................75
SECTION 8.03. Application of Trust Money..........................77
SECTION 8.04. Repayment to Company................................77
SECTION 8.05. Indemnity for Government
Obligations.......................................77
SECTION 8.06. Reinstatement.......................................77
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders..........................78
SECTION 9.02. With Consent of Holders.............................79
SECTION 9.03. Compliance with Trust Indenture.....................80
SECTION 9.04. Revocation and Effect of Consents
and Waivers.......................................80
SECTION 9.05. Notation on or Exchange of
Securities........................................81
SECTION 9.06. Trustee To Sign Amendments..........................81
SECTION 9.07. Payment for Consent.................................81
ARTICLE 10
SUBORDINATION
SECTION 10.01. Agreement To Subordinate..............................81
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy.......................................82
SECTION 10.03. Default on Senior Indebtedness........................83
SECTION 10.04. Acceleration of Payment of
Securities.......................................84
<PAGE>
4
SECTION 10.05. When Distribution Must Be Paid
Over.............................................85
SECTION 10.06. Subrogation...........................................85
SECTION 10.07. Relative Rights.......................................85
SECTION 10.08. Subordination May Not Be Impaired
by Company.......................................85
SECTION 10.09. Rights of Trustee and Paying
Agent............................................85
SECTION 10.10. Distribution or Notice to
Representative...................................86
SECTION 10.11. Article 10 Not To Prevent Events of
Default or Limit Right To
Accelerate.......................................86
SECTION 10.12. Trust Moneys Not Subordinated.........................86
SECTION 10.13. Trustee Entitled To Rely..............................87
SECTION 10.14. Trustee To Effectuate
Subordination....................................87
SECTION 10.15. Trustee Not Fiduciary for Holders
of Senior Indebtedness...........................87
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions.......................................88
ARTICLE 11
SUBSIDIARY GUARANTIES
SECTION 11.01. Guaranties............................................88
SECTION 11.02. Limitation on Liability...............................91
SECTION 11.03. Successors and Assigns................................91
SECTION 11.04. No Waiver.............................................91
SECTION 11.05. Modification..........................................91
SECTION 11.06. Release of Subsidiary Guarantor.......................91
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTIES
SECTION 12.01. Agreement to Subordinate .............................92
SECTION 12.02. Liquidation, Dissolution,
Bankruptcy ......................................92
SECTION 12.03. Default on Senior Indebtedness
of Subsidiary Guarantor..........................93
SECTION 12.04. Demand for Payment....................................94
SECTION 12.05. When Distribution Must Be Paid........................94
SECTION 12.06. Subrogation...........................................94
SECTION 12.07. Relative Rights.......................................95
<PAGE>
5
SECTION 12.08. Subordination May Not Be
Impaired by Company..............................95
SECTION 12.09. Right of Trustee and Paying Agent.....................95
SECTION 12.10. Distribution or Notice
to Representative................................96
SECTION 12.11. Article 12 Not To Prevent Defaults
Under a Subsidiary Guaranty or
Limit Right to Demand Payment....................96
SECTION 12.12. Trustee Entitled To Reply.............................96
SECTION 12.13. Trustee To Effectuate Subordination...................97
SECTION 12.14. Trustee Not Fiduciary for
Holders of Senior Indebtedness
of Subsidiary Guarantor..........................97
SECTION 12.15. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions.......................................97
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls..........................98
SECTION 13.02. Notices...............................................98
SECTION 13.03. Communication by Holders with
Other Holders....................................99
SECTION 13.04. Certificate and Opinion as to
Conditions Precedent.............................99
SECTION 13.05. Statements Required in Certificate
or Opinion ......................................99
SECTION 13.06. When Securities Disregarded...........................99
SECTION 13.07. Rules by Trustee, Paying Agent and
Registrar.......................................100
SECTION 13.08. Legal Holidays.......................................100
SECTION 13.09. Governing Law........................................100
SECTION 13.10. No Recourse Against Others...........................100
SECTION 13.11. Successors...........................................100
SECTION 13.12. Multiple Originals...................................100
SECTION 13.13. Table of Contents; Headings..........................101
Exhibit A - Form of Security
Rule 144A/Regulation S Appendix
Exhibit 1 to Rule 144A/Regulation S Appendix
<PAGE>
INDENTURE dated as of May 11, 1999, among ANTEON
CORPORATION, a Virginia corporation (the "Company"), VECTOR
DATA SYSTEMS, INC., a Virginia corporation, and TECHMATICS,
INC., a Virginia corporation, as Guarantors, and IBJ WHITEHALL
BANK & TRUST COMPANY, a New York trust corporation (the
"Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of (1) the Company's 12% Senior
Subordinated Notes Due 2009 (the "Initial Securities"), (2) if and when issued
pursuant to a registered exchange for Initial Securities, the Company's 12%
Senior Subordinated Notes Due 2009 (the "Exchange Securities"), (3) if and when
issued pursuant to a private exchange for Initial Securities, the Company's 12%
Senior Subordinated Notes Due 2009 (the "Private Exchange Securities") and (4)
if and when issued, any Additional Securities (as defined herein, and together
with the Private Exchange Securities, the Exchange Securities and the Initial
Securities, the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquisition" means the acquisition of Analysis &
Technology, Inc. by the Company.
"Acquisition Closing Date" means the date on which
the Company consummates the Acquisition.
"Additional Assets" means any:
(1) property, plant or equipment used in a Related
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
<PAGE>
2
PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2)
or (3) above is primarily engaged in a Related Business.
"Additional Securities" means, subject to the Company's compliance
with Section 4.03, 12% Senior Subordinated Notes Due 2009 issued from time to
time after the Issue Date under the terms of this Indenture (other than pursuant
to Section 2.06, 2.07, 2.09 or 3.06) and other than Exchange Securities or
Private Exchange Securities issued pursuant to an exchange offer for other
Securities outstanding under this Indenture.
"Affiliate" of any specified Person means:
(1) any other Person, directly or indirectly,
controlling or controlled by; or
(2) under direct or indirect common control with such specified Person.
For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of
Sections 4.04, 4.06 and 4.07 only, "Affiliate" shall also mean any beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Capital
Stock representing 10% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of the Company or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted
Subsidiary);
<PAGE>
3
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary (other than, in the case of clauses (1) and (2) above and
this clause (3):
(A) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary;
(B) leases of excess space in the ordinary course of business;
(C) for purposes of Section 4.06 only, a disposition that
constitutes a Restricted Payment permitted by Section 4.04 or
a Permitted Investment; and
(D) disposition of assets with a fair market value of less than
$200,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness, the quotient obtained by dividing (1) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Indebtedness or redemption
or similar payment with respect to such Indebtedness multiplied by the amount of
such payment by (2) the sum of all such payments.
"Banks" means any obligee under the Credit Agreement.
"Bank Indebtedness" means all Obligations pursuant
to the Credit Agreement.
<PAGE>
4
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to
be classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
(1) prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common
stock of the Company, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of a majority in the
aggregate of the total voting power of the Voting Stock of the
Company, whether as a result of issuance of securities of the Parent
or the Company, any merger, consolidation, liquidation or
dissolution of the Parent or the Company, any direct or indirect
transfer of securities by Parent or otherwise (for purposes of this
clause (1) and clause (2) below, the Permitted Holders shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent corporation);
<PAGE>
5
(2) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (1) above, except
that for purposes of this clause (2) such person shall be deemed to
have "beneficial ownership" of all shares that any such person has
the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more
than 35% of the total voting power of the Voting Stock of the
Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially
own (as defined in clause (1) above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the
Voting Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors (for
the purposes of this clause (2), such other person shall be deemed
to beneficially own any Voting Stock of a specified corporation held
by a parent corporation, if such other person is the beneficial
owner (as defined in this clause (2)), directly or indirectly, of
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined
in clause (1) above), directly or indirectly, in the aggregate a
lesser percentage of the voting power of the Voting Stock of such
parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation);
(3) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of 662/3% of the directors of the
Company then still in office who were either directors on the Issue
Date or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board
of Directors then in office;
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or
the sale of
<PAGE>
6
all or substantially all the assets of the Company to another Person
(other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities
of the Company that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power
of the Voting Stock of the Company are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction
such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation
that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (x) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters for which financial statements are then
available prior to the date of such determination to (y) Consolidated Interest
Expense for such four fiscal quarters; PROVIDED, HOWEVER, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period (except that, in making
such computation, the amount of
<PAGE>
7
Indebtedness under any revolving credit facility outstanding on the
date of such calculation shall be computed based on (A) the average
daily balance of such Indebtedness during such four fiscal quarters
or such shorter period when such facility was outstanding or (B) if
such facility was created after the end of such four fiscal
quarters, the average balance of such Indebtedness during the period
from the date of creation of such facility to the date of the
computation);
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other
than Indebtedness Incurred under any revolving credit facility
unless such Indebtedness has been permanently repaid and has not
been replaced) on the date of the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on
a pro forma basis as if such discharge had occurred on the first day
of such period and as if the Company or such Restricted Subsidiary
has not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative), directly attributable thereto for
such period and Consolidated Interest Expense for such period shall
be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is
<PAGE>
8
sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to
the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or
substantially all of a business or a product line, operating unit or
similar portion of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if
such Investment or acquisition occurred on the first day of such
period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment
pursuant to clause (3) or (4) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be
given under clause (4) above, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company,
and such pro forma calculations shall include (A) (x) the savings in cost of
revenues that would have resulted from using the Company's or its Restricted
Subsidiaries', as applicable, actual costs for comparable goods and services
<PAGE>
9
during the comparable period and (y) other savings in cost of revenues or
eliminations of selling, general and administrative expenses as determined by a
responsible financial or accounting Officer of the Company in good faith in
connection with the Company's consideration of such transaction and consistent
with the Company's experience in similar transactions less (B) the incremental
expenses that would be included in cost of revenues and selling, general and
administrative expenses that would have been incurred by the Company or its
Restricted Subsidiaries, as applicable, in the operation or ownership of such
acquired assets during such period. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest of such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries, without
duplication:
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale/
Leaseback Transaction;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expenses;
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing;
(6) net costs associated with Hedging Obligations (including
amortization of fees);
(7) dividends paid in cash or Disqualified Stock in respect of all
Preferred Stock of Restricted Subsidiaries and Disqualified Stock of
the Company
<PAGE>
10
held by Persons other than the Company or a Wholly Owned Subsidiary;
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest actually paid by the Company or a Restricted Subsidiary
under a Guarantee of Indebtedness of any other Person; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan
or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or
trust; and
less, to the extent included in such total interest expense, the amortization
during such period of debt issuance costs; PROVIDED, HOWEVER, that the aggregate
amount of amortization relating to any such debt issuance costs deducted in
calculating Consolidated Interest Expense shall not exceed 5% of the aggregate
amount of the financing giving rise to such debt issuance costs.
"Consolidated Leverage Ratio" as of any date means the ratio of (x)
the aggregate amount of Indebtedness (net of cash and marketable securities) of
the Company and its Restricted Subsidiaries as of such date of determination to
(y) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters for which financial statements are then available
prior to such date of determination, in each case with such pro forma
adjustments to consolidated Indebtedness and EBITDA as are appropriate and
consistent with the pro forma provisions set forth in the definition of
Consolidated Coverage Ratio.
"Consolidated Net Income" means, for any period, the net income of
the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net
<PAGE>
11
Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid
to a Restricted Subsidiary, to the limitations contained in
clause (3) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net
Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company,
except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary
during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this
clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining
such Consolidated Net Income;
(4) any gain or loss realized upon the sale or other disposition of any
assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise
<PAGE>
12
disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of
any Person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of Section 4.04
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Credit Agreement" means (1) prior to the Acquisition Closing Date,
the Credit Agreement dated March 18, 1998, by and among the Company and Vector
Data Systems, Inc., the lenders referred to therein and Mellon Bank, N.A., as
agent, as amended, and (2) on or after the Acquisition Closing Date, the Credit
Agreement to be entered into by and among, the Company, certain of its
Subsidiaries, the lenders referred to therein, and Credit Suisse First Boston,
as agent, together with the related documents thereto (including the term loans
and revolving loans thereunder, reimbursement obligations under any letters of
credit, any guarantees and security documents), as amended, extended, renewed,
replaced, restated, supplemented or otherwise modified (in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions) from time to time, and any agreement (and related document)
governing Indebtedness incurred to Refinance, in whole or in part, the
borrowings and commitments then outstanding or permitted to be outstanding under
such Credit Agreement or a successor Credit Agreement, whether by the same or
any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement designed
to protect such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Designated Senior Indebtedness" means:
<PAGE>
13
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of the Company
which, at the date of determination, has an
aggregate principal amount outstanding of, or
under which, at the date of determination, the
holders thereof are committed to lend up to, at
least $10.0 million and is specifically designated
by the Company in any instrument evidencing or
governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this
Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder) or upon
the happening of any event:
(1) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Securities; PROVIDED, HOWEVER, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the Securities and
described under Sections 4.06 and 4.09; and
(2) any such requirement only becomes operative after compliance with
such terms applicable to the Securities, including the purchase of
any Securities tendered pursuant thereto.
<PAGE>
14
"EBITDA" for any period means the sum of Consolidated Net Income,
plus the following to the extent deducted in calculating such Consolidated Net
Income:
(1) all income tax expense of the Company and its
consolidated Restricted Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior
period); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash
expenditures in any future period);
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants; and
(2) statements and pronouncements of the Financial Accounting Standards
Board.
<PAGE>
15
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or
other obligation of such Person (whether arising
by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or
to maintain financial statement conditions or
otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof;
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation. The Ogden Note will not be deemed to be
Guaranteed unless Anteon executes a guaranty thereof.
"Guaranty Agreement" means a supplemental indenture, in a form
satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor guarantees
the Company's obligations with respect to the Securities on the terms provided
for in the Indenture.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
<PAGE>
16
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which such
Person is responsible or liable including, in each case, any premium
on such indebtedness to the extent such premium has become due and
payable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such
Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the
ordinary course of business);
(4) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in
clauses (1) through (3) above) entered into in the ordinary course
of business of such Person to the extent such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on
the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock
or, with respect to any Subsidiary of such Person, the liquidation
preference with respect to, any Preferred Stock (but excluding, in
each case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable,
<PAGE>
17
directly or indirectly, as obligor, guarantor or otherwise,
including by means of any Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser
of the value of such property or assets or the amount of the
obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; PROVIDED,
HOWEVER, that the amount outstanding at any time of any Indebtedness issued with
original issue discount shall be deemed to be the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in accordance with
GAAP. Notwithstanding the foregoing, Indebtedness shall not include any
liability for Federal, state, local or other taxes owed or owing to any
governmental entity.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Interest Rate Agreement" means in respect of a Person any interest
rate swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person.
<PAGE>
18
For purposes of the definition of "Unrestricted Subsidiary", the
definition of "Restricted Payment" and Section 4.04:
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market
value of the net assets of any Subsidiary of the Company at the time
that such Subsidiary is designated an Unrestricted Subsidiary;
PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary equal to
an amount (if positive) equal to (A) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (B) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Original Securities are
originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Merger Agreement" means the Agreement and Plan of Merger, dated as
of March 7, 1999, by and among the Company, Buffalo Acquisition Corporation and
Analysis & Technology, Inc.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
and proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such
<PAGE>
19
properties or assets or received in any other noncash form), in each case net
of:
(1) all legal, title, recording or transfer tax, accounting, consulting
or similar transaction expenses, brokerage or other fees,
commissions and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect
to such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law,
be repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such
Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed in such Asset Disposition
and retained by the Company or any Restricted Subsidiary after such
Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, printing costs,
filing and listing fees, discounts or commissions and brokerage, consultant and
other fees or expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Obligations" means with respect to any Indebtedness all obligations
for principal, premium, interest, penalties, fees, indemnifications,
reimbursements, and other amounts payable pursuant to the documentation
governing such Indebtedness.
<PAGE>
20
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Ogden Note" means the Amended and Restated, Non Negotiable,
Subordinated 9% Promissory Note due April 22, 2004 of Parent in favor of Ogden
Technology Services Corporation, dated as of October 1, 1998, in the principal
amount of $3,650,000.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
"Parent" means Azimuth Technologies, Inc., a Delaware corporation,
and any successor corporation.
"Permitted Holders" means (i) Caxton Corporation, Frederick J.
Iseman, Steven Lefkowitz, Joseph A. Kampf, Robert A. Ferris and any other Person
who is a controlled Affiliate of any of the foregoing and any member of senior
management of the Company on the Issue Date and (ii) any Related Party of any of
the foregoing.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is
a Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted
Subsidiary; PROVIDED, HOWEVER, that such Person's primary business
is a Related Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable
or dischargeable in
<PAGE>
21
accordance with customary trade terms; PROVIDED, HOWEVER, that such
trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such
Restricted Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company
or any Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as
permitted pursuant to Section 4.06; and
(9) additional Investments made after the Issue Date in an aggregate
amount which, together with all other Investments made pursuant to
this clause (9) that are outstanding, do not exceed $10.0 million.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of Capital Stock of any other class of
such Person.
"principal" of a Security means the principal of the Security plus
the premium, if any, payable on the Secu-
<PAGE>
22
rity which is due or overdue or is to become due at the relevant time.
"Public Equity Offering" means an underwritten primary public
offering of common stock of Parent or the Company pursuant to an effective
registration statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering
has been consummated and (y) at least 10% of the total issued and outstanding
common stock of Parent or the Company, as applicable, has been distributed by
means of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"Rating Agency" means Standard & Poor's Ratings Group, Inc. and
Moody's Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or
Moody's Investors Service, Inc. or both shall not make a rating on the
Securities publicly available, a nationally recognized statistical rating agency
or agencies, as the case may be, selected by the Company (as certified by a
resolution of the Board of Directors) which shall be substituted for Standard &
Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both, as the
case may be.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, replace, prepay, redeem, defease or retire, or to
issue other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being Refinanced; and
<PAGE>
23
(3) such Refinancing Indebtedness has an aggregate principal amount (or
if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value)
then outstanding or committed (plus fees and expenses, including any
premium and defeasance costs) under the Indebtedness being
Refinanced;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights
Agreement dated May 6, 1999, among the Company, Credit Suisse First Boston
Corporation, Deutsche Bank Securities Inc. and Legg Mason Wood Walker,
Incorporated.
"Related Business" means the business of the Company and its
Restricted Subsidiaries on the Issue Date or the Acquisition Closing Date and
any business that in the good faith judgment of the Board of Directors is
related, ancillary or complementary thereto.
"Related Party" means (1) any controlling stockholder, controlling
member, general partner, majority owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of any Permitted Holder or (2) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons holding a controlling interest of
which consist solely of one or more Permitted Holders and/or such other Persons
referred to in the immediately preceding clause (1).
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including
any payment in connection with any merger or consolidation involving
such Person) or similar payment to the direct or
<PAGE>
24
indirect holders of its Capital Stock (other than dividends or
distributions payable solely in its Capital Stock (other than
Disqualified Stock) and dividends or distributions payable solely to
the Company or a Restricted Subsidiary, and other than pro rata
dividends or other distributions made by a Subsidiary that is not a
Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity
other than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of
any Capital Stock of a Restricted Subsidiary held by any Affiliate
of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than
into Capital Stock of the Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of
the date of such purchase, repurchase or other acquisition); or
(4) the making of any Investment in any Person (other than a Permitted
Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
"Revolving Credit Facilities" means any revolving credit facility
contained in the Credit Agreement and any other facility or financing
arrangement that Refinances or replaces, in whole or in part, any such revolving
credit facility.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
<PAGE>
25
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Securities issued under this Indenture.
"Senior Indebtedness" means, with respect to any Person on any date
of determination:
(1) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred (including the Indebtedness of such Person
under the Credit Agreement or any Guarantee thereof); and
(2) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization
relating to such Person whether or not post-filing interest is
allowed in such proceeding) in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of
which such Person is responsible or liable unless, in the case of
clauses (1) and (2), in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the
Securities;
PROVIDED, HOWEVER, that Senior Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary;
(2) any liability for Federal, state, local or other taxes owed or owing
by such Person;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid interest
in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of such Person;
<PAGE>
26
(5) the Ogden Note or the Techmatics Notes; or
(6) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" means (1) with respect to the
Company, the Securities and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank PARI PASSU with the
Securities in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness of the Company and (2) with respect to each Subsidiary
Guarantor, its Subsidiary Guaranty of the Securities and any other Indebtedness
of such Subsidiary Guarantor that specifically provides that such Indebtedness
is to rank pari passu with such Subsidiary Guaranty in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of such Subsidiary Guarantor which is not Senior Indebtedness of such
Subsidiary Guarantor.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or
any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is expressly subordinate or junior in right of payment to the
Securities or, in the case of a Subsidiary Guarantor, its Subsidiary Guaranty,
in each case pursuant to a written agreement to that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, company, partnership or other business entity of which more than
50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard
<PAGE>
27
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of
such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of the Company that
Guarantees the Company's obligations with respect to the Securities pursuant to
the terms of the Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of
the Company's obligations with respect to the Securities.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States
of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States, and
which bank or trust company has capital, surplus and undivided
profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into
<PAGE>
28
with a bank meeting the qualifications described in clause (2)
above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than
an Affiliate of the Company) organized and in existence under the
laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time
as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group; and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at
least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc.
"Term Loan Facilities" means the term loan facilities contained in
the Credit Agreement and any other facility or financing arrangement that
Refinances in whole or in part any such term loan facility.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or
any other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time
of determination shall be designated an Unrestricted
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29
Subsidiary by the Board of Directors in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated or another Unrestricted Subsidiary; PROVIDED, HOWEVER, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under Section 4.04.
The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving
effect to such designation (A) the Company could Incur $1.00 of additional
Indebtedness under Section 4.03(a) and (B) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees (or
persons performing similar functions) thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than
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30
directors' qualifying shares) is owned by the Company or one or more Wholly
Owned Subsidiaries.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
---- -----------
"Affiliate Transaction" ................ 4.07
"Appendix" ............................. 2.01
"Bankruptcy Law" ....................... 6.01
"Blockage Notice" ...................... 10.03
"covenant defeasance option" ........... 8.01(b)
"Change of Control Offer" .............. 4.09(b)
"Custodian" ............................ 6.01
"Event of Default" ..................... 6.01
"legal defeasance option" .............. 8.01(b)
"Legal Holiday" ........................ 13.08
"Notice of Default" .................... 6.01
"Obligations" .......................... 11.01
"Offer" ................................ 4.06(b)
"Offer Amount" ......................... 4.06(c)(2)
"Offer Period" ......................... 4.06(c)(2)
"pay the Securities" ................... 10.03
"pay its Subsidiary Guaranty" .......... 12.03
"Paying Agent" ......................... 2.03
"Payment Blockage Period" .............. 10.03
"Purchase Date" ........................ 4.06(c)(1)
"Registrar"............................. 2.03
"Successor Company" .................... 5.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
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31
"obligor" on the indenture securities means the Company, each
Guarantor and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as
unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date
prepared in accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the maximum
liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to
such Preferred Stock, whichever is greater;
(9) all references to the date the Securities were originally issued
shall refer to the date the Initial Securities were originally
issued; and
(10) all references to any amount of interest or any other amount payable
on or with respect to any of the Securities shall be deemed to
include payment
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32
of any additional interest pursuant to the Registration Rights
Agreement.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING. Provisions relating to the Initial
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix")
which is hereby incorporated in and expressly made part of this Indenture. The
Initial Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to the Appendix which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Securities, the Private Exchange Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to the Company).
Each Security shall be dated the date of its authentication. The terms of the
Securities set forth in the Appendix and Exhibit A are part of the terms of this
Indenture.
SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
On the Issue Date, the Trustee shall authenticate and deliver $100.0
million of 12% Senior Subordinated Notes Due 2009 and, at any time and from time
to time thereafter,
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33
the Trustee shall authenticate and deliver Additional Securities for original
issue upon a written order of the Company signed by two Officers or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated and, in the case of an issuance of Additional Securities pursuant
to Section 2.13 after the Issue Date, shall certify that such issuance is in
compliance with Section 4.03.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or agent
for service of notices and demands.
SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
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34
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall immediately
notify the Trustee in writing of any default by the Company in making any such
payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be issued
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(1)
of the Uniform Commercial Code are met. When Securities are presented to the
Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-registrar's
request. The Company may require the Securityholder to make payment of a sum
sufficient to pay all taxes, assessments or other governmental charges in
connection with any transfer or exchange pursuant to this Section. The Company
shall not be
<PAGE>
35
required to make and the Registrar need not register transfers or exchanges of
Securities selected for redemption (except, in the case of Securities to be
redeemed in part, the portion thereof not to be redeemed) or any Securities for
a period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
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36
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10. CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver canceled Securities to the Company.
The Company may not issue new Securities to replace Securities it has redeemed,
paid or delivered to the Trustee for cancellation.
SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable
<PAGE>
37
satisfaction of the Trustee and shall promptly mail to each Securityholder a
notice that states the special record date, the payment date and the amount of
defaulted interest to be paid.
SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
PROVIDED, HOWEVER, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
SECTION 2.13. ISSUANCE OF ADDITIONAL SECURITIES. The Company shall
be entitled, subject to its compliance with Section 4.03, to issue Additional
Securities under this Indenture which shall have identical terms as the Initial
Securities issued on the Issue Date, other than with respect to the date of
issuance, issue price and amount of interest payable on the first payment date
applicable thereto. The Initial Securities issued on the Issue Date, any
Additional Securities and all Exchange Securities or Private Exchange Securities
issued in exchange therefor shall be treated as a single class for all purposes
under this Indenture.
With respect to any Additional Securities, the Company shall set
forth in a resolution of the Board of Directors and an Officers' Certificate, a
copy of each which shall be delivered to the Trustee prior to the Trustee's
issuance of the Additional Securities, the following information:
(1) the aggregate principal amount and CUSIP number of such Additional
Securities to be authenticated and delivered pursuant to this
Indenture;
(2) the issue price and the issue date of such Additional Securities and
the amount of interest payable on the first payment date applicable
thereto; PROVIDED, HOWEVER, that no Additional Securities may be
issued at a price that would cause such Additional Securities to
have "original issue discount" within the meaning of Section 1273 of
the Code; and
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38
(3) whether such Additional Securities shall be transfer restricted
securities and issued in the form of Initial Securities as set forth
in Exhibit 1 to the Appendix to this Indenture or shall be issued in
the form of Exchange Securities as set forth in Exhibit A to the
Appendix.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities or is required to redeem
Securities pursuant to paragraph 6 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
Except as described under the second paragraph of Section 3.03, the
Company shall give each notice to the Trustee provided for in this Section at
least 60 days before the redemption date unless the Trustee consents in writing
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and, in the case of an optional redemption, an Opinion of Counsel
from the Company to the effect that such redemption will comply with the
conditions herein.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee in its
sole discretion shall deem to be fair and appropriate and in accordance with
methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Securities
not previously called for redemption. The Trustee may select for redemption
portions of the principal of Securities that have denominations larger than
$1,000. Securities and portions of them the Trustee selects shall be in amounts
of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption. The Trustee shall notify the Company promptly of the Securities
or portions of Securities to be redeemed.
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39
SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed at such Holder's registered address.
In the event of the Special Mandatory Redemption pursuant to and as
defined in paragraph 6 of the Securities, the Company shall prepare and cause to
be mailed a notice of such redemption on the first Business Day following the
earlier of (i) July 31, 1999, and (ii) the date the Company abandons the
Acquisition or terminates the Merger Agreement.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed, the
identification and principal amounts of the particular Securities to
be redeemed;
(6) that, unless the Company defaults in making such redemption payment
or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion
thereof) called for redemption ceases to accrue on and after the
redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the
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40
Company's expense. In such event, the Company shall provide the Trustee with the
information required by this Section.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date). Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancellation.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the original Security
surrendered.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
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41
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC REPORTS. Notwithstanding that the Company may not
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file (unless the SEC will not accept such filing) with the
SEC and provide the Trustee and Securityholders with such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filings of such information, documents
and reports under such Sections.
In addition, whether or not required by the SEC, the Company will
file a copy of all of the information and reports referred to above with the SEC
for public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing).
SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company or any
Restricted Subsidiary may Incur Indebtedness if, on the date of such Incurrence
and after giving effect thereto, (1) the Consolidated Coverage Ratio exceeds
2.00 to 1.00 if such Indebtedness is Incurred prior to May 15, 2001 or 2.25 to
1.00 if such Indebtedness is Incurred thereafter and (2) the Consolidated
Leverage Ratio would be less than 5.75 to 1.00 if such Indebtedness is Incurred
prior to December 31, 2000 or 5.50 to 1.00 if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a),
the Company and the Restricted Subsidiaries may Incur any or
all of the following Indebtedness:
(1) Indebtedness of the Company Incurred pursuant to the Revolving
Credit Facilities; PROVIDED, HOWEVER, that, immediately after
giving effect to any such Incurrence, the aggregate principal
amount of all Indebtedness Incurred under this clause (1) and
then outstanding does not exceed the greater of (A) $110.0
million and (B) 90% of accounts
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42
receivable of the Company and its Restricted Subsidiaries;
(2) Indebtedness of the Company Incurred pursuant to the Term Loan
Facilities; PROVIDED, HOWEVER, that, after giving effect to
any such Incurrence, the aggregate principal amount of all
Indebtedness Incurred under this clause (2) and then
outstanding does not exceed $60.0 million less the aggregate
sum of all principal payments with respect to such
Indebtedness pursuant to paragraph (a)(3)(A) of Section 4.06.
(3) Indebtedness of the Company or any Restricted Subsidiary owed
to and held by the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that any subsequent issuance or transfer of
any Capital Stock which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the
Company or another Restricted Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness
by the issuer thereof;
(4) the Securities (other than any Additional Securities);
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this
Section 4.03(b));
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to clause (4) or (5)
or this clause (6) of this Section 4.03(b);
(7) Hedging Obligations under or with respect to Interest Rate
Agreements and Currency Agreements required under the Credit
Agreement or entered into in the ordinary course of business
and not for the purpose of speculation;
(8) Indebtedness in respect of performance bonds, bankers'
acceptances, letters of credit and
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43
surety or appeal bonds provided by the Company and the
Restricted Subsidiaries in the ordinary course of their
business and which do not secure other Indebtedness of the
Company or any Restricted Subsidiary (except Indebtedness
permitted under the Indenture);
(9) Subsidiary Guaranties of the Subsidiary Guarantors;
(10) the Guarantee of any Indebtedness otherwise permitted to be
Incurred pursuant to the Indenture;
(11) Indebtedness of the Company or any Restricted Subsidiary
consisting of indemnification, adjustment of purchase price,
earn-out or similar obligations, in each case incurred in
connection with the acquisition or disposition of any assets,
including shares of Capital Stock or divisions or lines of
business, of the Company or any Restricted Subsidiary; and
(12) Indebtedness of the Company in an aggregate principal amount
which, together with all other Indebtedness of the Company
outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (11) of this
Section 4.03(b) or Section 4.03(a)) does not exceed $25.0
million.
(c) Notwithstanding the foregoing, the Company shall not, and shall
not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to
Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Securities or the relevant Subsidiary Guaranty, as
applicable, to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.03,
(1) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above at the time of its Incurrence,
the Company, in its sole discretion, will classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
the above clauses (provided that any Indebtedness classified
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44
as Incurred pursuant to clause (b)(12) above may later be reclassified as having
been Incurred pursuant to paragraph (a) above to the extent that such
reclassified Indebtedness could be Incurred pursuant to paragraph (a) above at
the time of such reclassification) and (2) an item of Indebtedness may be
divided and classified in more than one of the types of Indebtedness described
above.
(e) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall
not, and shall not permit any Subsidiary Guarantor to, Incur (1) any
Indebtedness if such Indebtedness is expressly subordinate or junior in ranking
in any respect to any Senior Indebtedness of the Company or such Subsidiary
Guarantor, as applicable, unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness or (2) any Secured Indebtedness that is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Securities or the relevant Subsidiary Guaranty, as applicable,
equally and ratably with such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company
shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness under Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which
the Issue Date occurs to the end of the most recent fiscal quarter
for which financial statements are then available prior to the date
of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit); plus
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45
(B) 100% of the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than
Disqualified Stock) and the aggregate cash received by the Company
as a capital contribution, in each case subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the Company and
other than an issuance or sale to an employee stock ownership plan
or to a trust established by the Company or any of its Subsidiaries
for the benefit of their employees); plus
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's consolidated
balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company or any Restricted Subsidiary convertible
or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash, or the fair value of any
other property, distributed by the Company or such Restricted
Subsidiary upon such conversion or exchange); plus
(D) an amount equal to the sum of (x) the net reduction in
Investments in any Person resulting from dividends, repayments of
loans or advances or other transfers of assets, in each case to the
Company or any Restricted Subsidiary from such Person, or from the
proceeds received by the Company or any Restricted Subsidiary upon
the disposition of any Investment and (y) the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not
exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company
or any Restricted Subsidiary in such Person or, in the case of any
Investment outstanding on the Issue Date (but not to exceed in the
aggregate $10.0 million) an amount not to exceed the lesser of the
amount of such net reduction or the amount of such Investment.
(b) The provisions of Section 4.04(a) shall not prohibit:
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46
(1) any Restricted Payment made by exchange for, or out of the
proceeds of the substantially concurrent sale of, or capital contribution
in respect of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of the Company
or an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees);
PROVIDED, HOWEVER, that (A) such Restricted Payment shall be excluded in
the calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from the calculation of amounts
under clause (3)(B) of Section 4.04(a);
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to Section 4.03; PROVIDED, HOWEVER, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(3) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 4.04(a); PROVIDED, HOWEVER, that at the time of payment of
such dividend, no other Default shall have occurred and be continuing (or
result therefrom); PROVIDED FURTHER, HOWEVER, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(4) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Company or any of its Subsidiaries
from employees, former employees, consultants, directors or former
directors of the Company or any of its Subsidiaries or Parent (or
permitted transferees of such employees, former employees, consultants,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto)
approved by the Board of Directors under which such individuals purchase
or sell or are granted the option to purchase or sell, shares of such
common stock; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases and other acquisitions shall not exceed the sum of (A) $5.0
million plus (B) the aggregate Net Cash Proceeds received by the Company
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47
from the issuance of such Capital Stock to, or the exercise of options to
purchase such Capital Stock by, employees or directors of the Company or
any of its Subsidiaries that occurs after the Issue Date (to the extent
the Net Cash Proceeds from the sale of such Capital Stock have not
otherwise been applied to the payment of Restricted Payments by virtue of
Section 4.04(a)(3)(B) or applied pursuant to Section 4.04(b)(1)) plus (C)
the Net Cash Proceeds actually received by the Company after the Issue
Date from insurance proceeds paid in respect of the death or disability of
any employee or director; PROVIDED FURTHER, HOWEVER, that such repurchases
and other acquisitions shall be excluded in the calculation of the amount
of Restricted Payments;
(5) dividends, distributions or advances to Parent to the extent
required to pay non-deferrable scheduled cash interest when due on, or the
principal amount at final scheduled maturity of, the Ogden Note; PROVIDED,
HOWEVER, that (A) no Default shall have occurred and be continuing (or
would result therefrom) and (B) Parent shall immediately apply any such
dividend to make such cash interest or principal payment; PROVIDED
FURTHER, HOWEVER, that such dividends, distributions and advances shall be
included in the calculation of the amount of Restricted Payments;
(6) dividends, distributions or advances to Parent to be used by
Parent to pay Federal, state and local taxes payable by Parent and
directly attributable to (or arising as a result of) the operations of the
Company and its Restricted Subsidiaries; PROVIDED, HOWEVER, that (A) the
amount of such dividends shall not exceed the amount that the Company and
its Restricted Subsidiaries would be required to pay in respect of such
Federal, state and local taxes were the Company to pay such taxes as a
stand-alone taxpayer and (B) such dividends pursuant to this clause (6)
are used by Parent for such purposes within 20 days of the receipt of such
dividends; PROVIDED FURTHER, HOWEVER, that such dividends shall be
excluded in the calculation of the amount of Restricted Payments;
(7) dividends, distributions or advances to Parent to the extent
necessary to pay for general corporate and overhead expenses incurred by
Parent in the ordinary course of business; PROVIDED, HOWEVER that such
dividends, shall not exceed $250,000 in any fiscal year of the Company;
PROVIDED FURTHER, HOWEVER, that
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48
such dividends, distributions or advances shall be included in the
calculation of the amount of Restricted Payments;
(8) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by Section 4.06; PROVIDED, HOWEVER,
that such purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments;
(9) upon the occurrence of a Change of Control and within 60 days
after the completion of the offer to repurchase the Securities pursuant to
Section 4.09 (including the purchase of the Securities tendered), any
purchase or redemption of Subordinated Obligations required pursuant to
the terms thereof as a result of such Change of Control at a purchase or
redemption price not to exceed the outstanding principal amount thereof,
plus any accrued and unpaid interest; PROVIDED, HOWEVER, that (A) at the
time of such purchase or redemption no Default shall have occurred and be
continuing (or would result therefrom), (B) the Company would be able to
Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a)
after giving pro forma effect to such Restricted Payment and (C) such
purchase or redemption shall be included in the calculation of the amount
of Restricted Payments; or
(10) payments required pursuant to the terms of the Merger Agreement
to consummate the Acquisition by the Company or a Restricted Subsidiary
pursuant to the terms of the Merger Agreement; PROVIDED, HOWEVER, that
such payments shall be excluded in the calculation of the amount of
Restricted Payments.
SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) make any loans or advances to the
<PAGE>
49
Company or (c) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date or, in the case of the Credit
Agreement, as in effect on the Acquisition Closing Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this Section 4.05 or this clause (3)
or contained in any amendment to an agreement referred to in clause (1) or
(2) of this Section 4.05 or this clause (3); PROVIDED, HOWEVER, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favor
able to the Securityholders than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor
agreements;
(4) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases or licenses to the extent such
provisions restrict the transfer of the lease or license or the property
leased or licensed thereunder;
(5) any encumbrance or restriction consisting of any restriction on
the sale or other disposition of assets or property securing Indebtedness
as a result of a Lien permitted to be Incurred under the Indenture on such
asset or property;
(6) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent
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50
such restrictions restrict the transfer of the property subject to such
security agreements or mortgages;
(7) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(8) any restriction in any agreement that is not more restrictive
than the restrictions under the terms of the Credit Agreement as in effect
on the closing date of the Acquisition.
SECTION 4.06. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market
value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and
assets subject to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash
equivalents (provided that such 75% requirement shall not apply to any
Asset Disposition in which the cash or cash equivalents portion of the
consideration received therefor is no less than an amount equal to the
product of (x) six and (y) the amount of EBITDA directly attributable to
the assets or Capital Stock included in such Asset Disposition); and
(3) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be):
(A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness or Indebtedness (other than any
Disqualified Stock) of a Restricted Subsidiary (in each case
other
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51
than Indebtedness owed to the Company or an Affiliate of the
Company) within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to the
extent the Company elects, to acquire Additional Assets within
one year from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to
make an offer to the holders of the Securities (and to holders
of other Senior Subordinated Indebtedness designated by the
Company) to purchase Securities (and such other Senior
Subordinated Indebtedness) pursuant to and subject to the
conditions contained in the Indenture; and
(D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and
(C), for any purpose not prohibited by the terms of the
Indenture;
PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant exceeds $10.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Permitted Investments or used to temporarily reduce loans outstanding under
Revolving Credit Facilities.
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52
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition; and
(2) securities received by the Company or any Restricted Subsidiary from
the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase
of Securities (and other Senior Subordinated Indebtedness) pursuant to Section
4.06(a)(3)(C), the Company shall be required to purchase Securities tendered
pursuant to an offer by the Company for the Securities (and other Senior
Subordinated Indebtedness) (the "Offer") at a purchase price of 100% of their
principal amount (without premium) plus accrued but unpaid interest (or, in
respect of such other Senior Subordinated Indebtedness, such lesser price, if
any, as may be provided for by the terms of such Senior Subordinated
Indebtedness) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in Section 4.06(c). If the aggregate
purchase price of Securities (and any other Senior Subordinated Indebtedness)
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase thereof, the Company shall be required to apply the remaining Net
Available Cash in accordance with Section 4.06(a)(3)(D). If the aggregate
purchase price of the securities tendered exceeds the Net Available Cash
allotted to purchase thereof, the Company will select the securities to be
purchased on a pro rata basis but in denominations of $1,000 or multiples
thereof. The Company shall not be required to make an Offer to purchase
Securities (and other Senior Subordinated Indebtedness) pursuant to this Section
4.06 if the Net Available Cash available therefor is less than $10.0 million
(which lesser amount shall be carried forward for purposes of determining
whether such an Offer is required with respect to the Net Available Cash from
any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
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53
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorating as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such Reports, and (iii) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.06(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with the Paying Agent
(or, if the Company is acting as its own paying agent, segregate and hold in
trust) in Temporary Cash Investments, maturing on the last day prior to the
Purchase Date or on the Purchase Date if funds are immediately available by open
of business, an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Offer remains open (the "Offer Period"), the Company shall
deliver to the Trustee for cancellation the Securities or portions thereof which
have been properly tendered to and are to be accepted by the Company. The
Trustee shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price. In the event that the aggregate
purchase price of the Securities delivered by the Company to the Trustee is less
than the Offer Amount applicable to the Securities, the
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54
Trustee shall deliver the excess to the Company immediately after the expiration
of the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the Purchase Date, a telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities (and any other Senior
Subordinated Indebtedness included in the Offer) surrendered by holders thereof
exceeds the Offer Amount, the Company shall select the Securities and the other
Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Securities
and the other Senior Subordinated Indebtedness in denominations of $1,000, or
integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part shall be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an agent, mails or delivers payment therefor to the surrendering
Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.06(d) by virtue thereof.
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55
SECTION 4.07. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to the
Company or such Restricted Subsidiary than those that could be
obtained at the time of such transaction in arm's-length dealings
with a Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $1.0
million, the terms of the Affiliate Transaction are set forth in
writing and a majority of the non-employee directors of the Company
disinterested with respect to such Affiliate Transactions have
determined in good faith that the criteria set forth in clause (1)
are satisfied and have approved the relevant Affiliate Transaction
as evidenced by a Board resolution; and
(3) if such Affiliate Transaction involves an amount in excess of $10.0
million, the Board of Directors shall also have received a written
opinion from an investment banking firm of national prominence that
is not an Affiliate of the Company to the effect that such Affiliate
Transaction is fair, from a financial standpoint, to the Company and
its Restricted Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit:
(1) any Investment (other than a Permitted Investment) or other
Restricted Payment, in each case permitted to be made pursuant to
Section 4.04;
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors;
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56
(3) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of
Directors;
(4) loans or advances to employees in the ordinary course of business in
accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $3.0 million in the
aggregate outstanding at any one time;
(5) the payment of reasonable compensation or employee benefit
arrangements to and indemnity provided for the benefit of directors,
officers or employees of the Company or its Restricted Subsidiaries
in the ordinary course of business;
(6) any employment, noncompetition or confidentiality agreements entered
into by the Company or any Restricted Subsidiary with its employees
in the ordinary course of business.
(7) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries;
(8) the payment by the Company of fees to Caxton- Iseman and its
Affiliates in connection with any acquisition transaction entered
into by the Company or any Restricted Subsidiary; PROVIDED, HOWEVER,
that the aggregate amount of fees paid to Caxton-Iseman and its
Affiliates in respect of any acquisition transaction shall not
exceed 1% of the total acquisition cost of such transaction;
(9) the accrual (and, to the extent provided below, the payment) by the
Company of management fees payable to Caxton-Iseman and its
Affiliates in an amount not to exceed $1 million in any fiscal year
of the Company; PROVIDED, HOWEVER, that the amount of such fees
actually paid in any fiscal year does not exceed an amount equal to
the sum of (A) in the event the Consolidated Coverage Ratio on the
date of any proposed payment is greater than 2.0 to 1.0 but less
than or equal to 2.25 to 1.0, $500,000, plus (B) in the event the
Consolidated Coverage Ratio on the date of any proposed payment
exceeds 2.25 to 1.0, an additional $500,000, in each case together
with the amount of unpaid
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57
management fees accrued in any prior fiscal year that could have
been paid in such prior fiscal year had the Consolidated Coverage
Ratio applicable to clause (A) or (B) on the date of such proposed
payment been in effect on the date of accrual of such prior year's
fee; PROVIDED FURTHER, HOWEVER, that at the time of such accrual or
payment, no other Default shall have occurred and be continuing (or
result therefrom);
(10) any Affiliate Transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries; and
(11) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company.
SECTION 4.08. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except:
(1) to the Company or a Wholly Owned Subsidiary;
(2) directors' qualifying shares;
(3) the issuance of shares of common stock of Interactive Media
Corporation pursuant to the terms of any agreement or option related
thereto as in effect on the Acquisition Closing Date;
(4) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary; or
(5) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto would have been permitted to be made
under the covenant described in Section 4.04 if made on the date of
such issuance, sale or other disposition.
Notwithstanding the foregoing, the issuance or sale of shares of
Capital Stock of any Restricted Subsidiary of the Company will not violate the
provisions of the
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58
immediately preceding sentence if such shares are issued or sold in connection
with (x) the formation or capitalization of a Restricted Subsidiary or (y) a
single transaction or a series of substantially contemporaneous transactions
whereby such Restricted Subsidiary becomes a Restricted Subsidiary of the
Company by reason of the acquisition of securities or assets from another
Person.
SECTION 4.09. CHANGE OF CONTROL. (a) Upon the occurrence of a Change
of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest on the relevant interest payment date), in
accordance with the terms contemplated in Section 4.09(b). In the event that at
the time of such Change of Control the terms of the Credit Agreement prohibit
the Company from making a Change of Control Offer (as defined below) or from
purchasing any Securities pursuant to this Section, then prior to the mailing of
the notice to Holders provided for in Section 4.09(b) below but in any event
within 30 days following any Change of Control, the Company shall (1) repay in
full any indebtedness outstanding under the Credit Agreement or offer to repay
in full all such indebtedness and repay the Indebtedness of each lender which
has accepted such offer; or (2) obtain the requisite consent under the Credit
Agreement to permit the purchase of the Securities as provided for in Section
4.09(b).
(b) Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder with a copy to the Trustee (the "Change of
Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical
income, cash flow and capitalization, each after giving effect to such
Change of Control);
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(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the purchase date. Holders will be entitled to withdraw their election
if the Company receives not later than one Business Day prior to the purchase
date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) Notwithstanding the foregoing provisions of this Section, the
Company will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in Section
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.10. FUTURE GUARANTORS. The Company will cause each
domestic Restricted Subsidiary organized or
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acquired after the Issue Date and that Incurs Indebtedness (including any
Guarantees) to execute and deliver to the Trustee a Guaranty Agreement pursuant
to which such Restricted Subsidiary will Guarantee payment of the Securities on
the same terms and conditions as those set forth in the Indenture.
SECTION 4.11. COMPLIANCE CERTIFICATE. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA ss. 314(a)(4).
SECTION 4.12. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. (a) The
Company shall not consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, all or substantially all
its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia
and the Successor Company (if not the Company) shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company
under the Securities and this Indenture;
(2) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having
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been Incurred by the Successor Company or such Subsidiary at the time of
such transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
The Successor Company shall be the successor to the Company and
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture, and the predecessor Company, except in the
case of a lease, shall be released from the obligation to pay the principal of
and interest on the Securities.
(b) The Company shall not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or series of transactions, all or substantially all of its assets to
any Person unless:
(1) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws
of the United States of America, or any State hereof or the District of
Columbia, and such Person shall expressly assume, by an amendment to this
Indenture, in a form acceptable to the Trustee, all the obligations of
such Subsidiary, if any, under its Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as
a result of such transaction as having been issued by such Person at the
time of such transaction), no Default shall have occurred and be
continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each
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stating that such consolidation, merger or transfer and such amendment to
this Indenture, if any, complies with this Indenture;
PROVIDED, HOWEVER, that the preceding restrictions will not be applicable if, in
connection with such consolidation, merger, conveyance, transfer or lease, the
Subsidiary Guarantor will be released from its obligations under Section 11.06.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall
be prohibited by Article 10, and such default continues for a period of 30
days;
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity,
upon optional redemption, upon declaration or otherwise, whether or not
such payment shall be prohibited by Article 10 or (ii) fails to redeem or
purchase Securities when required pursuant to this Indenture or the
Securities, whether or not such redemption or purchase shall be prohibited
by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, or 4.10 (other than a failure to purchase
Securities when required under Section 4.06 or 4.09) and such failure
continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause (1),
(2), (3) or (4) above) and such failure continues for 60 days after the
notice specified below;
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(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $5.0 million, or
its foreign currency equivalent at the time;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$5.0 million or its foreign currency equivalent at the time is entered
against the Company or any Significant Subsidiary, remains outstanding for
a period of 60 consecutive days following the entry of such judgment or
decree and is not discharged, waived
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or the execution thereof stayed within 10 days after the notice specified
below; or
(10) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clauses (4), (5), (6) or (9) is not an Event of
Default until the Trustee or the holders of at least 25% in principal amount of
the outstanding Securities notify the Company of the Default and the Company
does not cure such Default within the time specified after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) or (9) and any event which with the giving
of notice or the lapse of time would become an Event of Default under clause
(4), (5), (6) or (9), its status and what action the Company is taking or
proposes to take with respect thereto.
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee in its sole discretion and by
notice to the Company, or the Holders of at least 25% in principal amount of the
outstanding Securities by notice to the Company and the Trustee, may declare the
principal of and accrued but unpaid interest on all the Securities to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an
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Event of Default specified in Section 6.01(7) or (8) with respect to the Company
occurs and is continuing, the principal of and interest on all the Securities
shall IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholders. The
Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee in its sole discretion may pursue any available remedy
to collect the payment of principal of or interest on the Securities or to
enforce the performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (1) a Default in the payment of the
principal of or interest on a Security, (2) a Default arising from the failure
to redeem or purchase any Security when required pursuant to this Indenture or
(3) a Default in respect of a provision that under Section 9.02 cannot be
amended without the consent of each Securityholder affected. When a Default is
waived, it is deemed cured, but no such waiver shall extend to any subsequent or
other Default or impair any consequent right.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that, in its sole
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66
discretion, it believes conflicts with law or this Indenture or, subject to
Section 7.01, that the Trustee in its sole discretion determines is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
SECTION 6.06. LIMITATION ON SUITS. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no
Securityholder may pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder previously gives to the Trustee written notice
stating that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during
such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such
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payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
SECTION 6.10. PRIORITIES. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness of the Company to the
extent required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall
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mail to each Securityholder and the Trustee a notice that states the record
date, the payment date and amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, Paying Agent, Registrar or
otherwise, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Securities.
SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has
occurred and is not cured, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations
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shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee in its role as Trustee, Paying Agent, Registrar or otherwise, is subject
to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
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(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper per son. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it here under
in good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Inden-
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ture or in any document issued in connection with the sale of the Securities or
in the Securities other than the Trustee's certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Security
(including payments pursuant to the mandatory redemption provisions of such
Security, if any), the Trustee may withhold the notice if and so long as a
committee of its Trust Officers in good faith determines that withholding the
notice is not opposed to the interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to June 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of May 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee from time to time reasonable compensation for its services as
Trustee, Paying Agent, Registrar or otherwise. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Company shall indemnify
the Trustee against any and all loss, liability or expense (including attorneys'
fees) incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim
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and the Trustee may have separate counsel and the Company shall pay the fees and
expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the
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Trustee under this Indenture. The successor Trustee shall promptly mail a notice
of its succession to Securityholders. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, subject to
the lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); PROVIDED, HOWEVER, that
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there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or
indentures under which other securities or certificates of interest or
participation in other securities of the Company are out standing if the
requirements for such exclusion set forth in TIA ss. 310(b)(1) are met.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities, including interest
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Sections
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time
may terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, and 4.10 and the operation of Sections
6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections
6.01(7) and (8), with respect only to Significant Subsidiaries) and the
limitations contained in Section 5.01(a)(3) ("covenant defeasance option"). The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
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If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default specified in
Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of
Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or
because of the failure of the Company to comply with Section 5.01(a)(3). If the
Company exercises its legal defeasance option or its covenant defeasance option,
each Subsidiary Guarantor, if any, shall be released from all its obligations
with respect to its Subsidiary Guaranty and the Security Agreements.
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and
interest on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in
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Sections 6.01(7) or (8) with respect to the Company occurs which is
continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or loss
for Federal income tax purposes as a result of such deposit and defeasance
and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Security holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Securities as contemplated by this
Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
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SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities. Money and securities
so held in trust are not subject to Article 10.
SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years,
and, thereafter, Securityholders entitled to the money must look to the Company
for payment as general creditors.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Security holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; PROVIDED, HOWEVER, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities, including any
Subsidiary Guaranties, or to secure the Securities;
(5) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(6) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(7) to make any change that does not adversely affect the rights of
any Securityholder.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
their Representative) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
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SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities then outstanding (including consents obtained in
connection with a tender offer or exchange for the Securities). However, without
the consent of each Securityholder affected thereby, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the amount payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder of the Securities to receive
payment of principal of and interest on such Holder's Securities on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such holder's Securities;
(7) make any change in Article 10 that adversely affects the rights
of any Securityholder under Article 10; or
(8) make any change in Section 6.04 or 6.07 or the second sentence
of this Section;
(9) make any change in any Subsidiary Guaranty (including the
subordination provisions of such Subsidiary Guaranty) that would adversely
affect the Securityholders; or
(10) make any change in the provisions described under paragraph 6
of the Securities.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of
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any proposed amendment, but it shall be sufficient if such consent approves the
substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
their Representative) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Security holder.
An amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
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SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
SECTION 9.07. PAYMENT FOR CONSENT. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and
each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment in full in
cash of all Senior Indebtedness of the Company and that the subordination is for
the benefit of and enforceable by the holders of such Senior Indebtedness. The
Securities shall in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of the Company
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and only Indebtedness of the Company which is Senior Indebtedness shall rank
senior to the Securities in accordance with the provisions set forth herein. All
provisions of this Article 10 shall be subject to Section 10.12.
SECTION 10.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any
payment or distribution of the assets of the Company to creditors upon any
liquidation or dissolution or winding up of the Company or upon any assignment
for the benefit of creditors or marshalling of assets of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness of the Company shall be entitled
to receive payment in full in cash of all Obligations with respect to such
Senior Indebtedness (including all interest accruing subsequent to the
filing of a petition in bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) before Securityholders shall be
entitled to receive any payment or distribution with respect to the
Securities;
(2) until all Obligations with respect to such Senior Indebtedness
are paid in full in cash, any payment or distribution to which
Securityholders would be entitled but for this Article 10 shall be made to
holders of such Senior Indebtedness as their interests may appear, except
that Securityholders may receive, in exchange for the Securities in any
proceeding of the type described above in this Section 10.02, (x) equity
securities of the Company which, in any case, do not provide for any
mandatory redemption or similar retirement prior to the maturity of the
Securities or (y) unsecured debt securities of the Company which are
subordinated to at least the same extent as the Securities to the payment
of all Senior Indebtedness of the Company and which, in any case, do not
mature or become subject to a mandatory redemption obligation prior to the
maturity of the Securities; and
(3) if a distribution is made to Securityholders that, due to the
subordination provisions of this Article 10, should not have been made to
them, such Securityholders are required to hold it in trust for the
holders of Senior Indebtedness of the Company and pay it over to them as
their interests may appear.
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SECTION 10.03. DEFAULT ON SENIOR INDEBTEDNESS. The Company may not
pay (in cash, property or other assets) the principal of, premium, if any, or
interest on the Securities or make any deposit pursuant to Section 8.01 and may
not repurchase, redeem or (except for Securities delivered to the Trustee
pursuant to paragraph 6 of the Securities) otherwise retire any Securities
(collectively, "pay the Securities") if (1) any Designated Senior Indebtedness
is not paid when due or (2) any other default on Designated Senior Indebtedness
occurs and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, (x) the default has been cured
or waived and any such acceleration has been rescinded or (y) such Designated
Senior Indebtedness has been paid in full in cash; PROVIDED, HOWEVER, that the
Company may pay the Securities without regard to the foregoing if the Company
and the Trustee receive written notice approving such payment from the
Representative of any Designated Senior Indebtedness with respect to which
either of the events set forth in clause (1) or (2) of this sentence has
occurred and is continuing.
During the continuance of any default (other than a default
described in clause (1) or (2) of the preceding sentence) with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Securities for a period (a "Payment
Blockage Period") commencing upon the receipt by the Company and the Trustee of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (1) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (2)
because the default giving rise to such Blockage Notice is no longer continuing
or (3) because such Designated Senior Indebtedness has been discharged or repaid
in full in cash). Notwithstanding the provisions described above, unless the
holders of such Designated Senior Indebtedness or the Representative of such
holders shall have accelerated the maturity of such Designated Senior
Indebtedness, or any payment default described in clause (1) or (2) of the first
paragraph of this Section exists, the Company may resume payments on the
Securities after the end of such Payment Blockage Period. The Securities shall
not
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be subject to more than one Payment Blockage Period in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period; PROVIDED, HOWEVER, that if any Blockage Notice
within such 360-day period is given by or on behalf of any holders of Designated
Senior Indebtedness (other than the Bank Indebtedness), the Representative of
the Bank Indebtedness may give another Blockage Notice within such period;
PROVIDED FURTHER, HOWEVER, that in no event may the total number of days during
which any Payment Blockage Period or Periods is in effect exceed 179 days in the
aggregate during any 360 consecutive day period, and there must be 181 days
during any 360-day consecutive period during which no Payment Blockage Period is
in effect.
For purposes of this Section, no default or event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis of the commencement
of a subsequent Payment Blockage Period by the Representative of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such default or event of default shall have been cured or waived for a
period of not less than 90 consecutive days (it being acknowledged and agreed
that (x) any default or event of default as a result of a continued failure to
meet a financial covenant or test for a period ended subsequent to the
commencement of a Payment Blockage Period shall constitute a new default or
event of default, as the case may be, and shall be deemed not to be a continuing
default or event of default, as the case may be, for purposes of this sentence
and (y) any subsequent action which would give rise to a default or an event of
default pursuant to any provision under which a default or event of default
previously existed or was continuing shall constitute a new default or event of
default, as the case my be, for this purpose and shall be deemed not to be a
continuing default or event of default, as the case may be, for purposes of this
sentence).
SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representatives) of the acceleration. If any Designated Senior
Indebtedness is outstanding at the time of such acceleration, neither the
Company nor any Subsidiary Guarantor may pay the Securities until five Business
Days after the respective Representatives of each
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of the issues of Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Securities only if this Indenture
otherwise permits payment at that time.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a
distribution is made to Securityholders that because of this Article 10 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness of the Company and pay
it over to them as their interests may appear.
SECTION 10.06. SUBROGATION. After all Senior Indebtedness of the
Company is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to such Senior Indebtedness. A
distribution made under this Article 10 to holders of such Senior Indebtedness
which otherwise would have been made to Securityholders is not, as between the
Company and Securityholders, a payment by the Company on such Senior
Indebtedness.
SECTION 10.07. RELATIVE RIGHTS. This Article 10 defines the relative
rights of Securityholders and holders of Senior Indebtedness of the Company.
Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness of the Company to receive distributions otherwise
payable to Securityholders.
SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No
right of any holder of Senior Indebtedness of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by its failure to comply with
this Indenture.
SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding
Section 10.03, the Trustee or Paying
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Agent may continue to make payments on the Securities and shall not be charged
with knowledge of the existence of facts that would prohibit the making of any
such payments unless, not less than two Business Days prior to the date of such
payment, a Trust Officer of the Trustee receives notice satisfactory to it that
payments may not be made under this Article 10. The Company, the Registrar or
co-registrar, the Paying Agent, a Representative or a holder of Senior
Indebtedness may give the notice; PROVIDED, HOWEVER, that, if an issue of Senior
Indebtedness of the Company has a Representative, only the Representative may
give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of the Company with the same rights it would have if it were not
Trustee. The Registrar and co-registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth in
this Article 10 with respect to any Senior Indebtedness of the Company which may
at any time be held by it, to the same extent as any other holder of such Senior
Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its
rights as such holder. Nothing in this Article 10 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
of the Company, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of a Default. Nothing in this Article 10 shall have any effect on
the right of the Securityholders or the Trustee to accelerate the maturity of
the Securities.
SECTION 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article 8 by the Trustee for
the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to the
restrictions set forth in this Article 10, and none of the Securityholders shall
be obligated to pay over any such amount to the Company or any holder of Senior
Indebtedness of the Company or any other
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creditor of the Company, so long as the foregoing subordination provisions
contained in this Article 10 were not violated at the time the respective
amounts were deposited pursuant to the defeasance provisions of Article 8.
SECTION 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Security holders or (iii) upon the Representatives for the holders of Senior
Indebtedness of the Company for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of such Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 10. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness of the Company to participate
in any payment or distribution pursuant to this Article 10, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of such Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article 10, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall
be applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 10.
SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of the Company as provided in this Article 10 and appoints
the Trustee as attorney-in-fact for any and all such purposes.
SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS. The Trustee shall not be deemed to
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owe any fiduciary duty to the holders of Senior Indebtedness and shall not be
liable to any such holders if it shall mistakenly pay over or distribute to
Securityholders or the Company or any other Person, money or assets to which any
holders of Senior Indebtedness of the Company shall be entitled by virtue of
this Article 10 or otherwise.
SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of the Company, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness and such holder of
such Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.
ARTICLE 11
SUBSIDIARY GUARANTIES
SECTION 11.01. GUARANTIES. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture and the Securities and
(b) the full and punctual performance within applicable grace periods of all
other obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter collectively called the "Obligations"). Each
Subsidiary Guarantor further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice or further assent from such
Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound under
this Article 11 notwithstanding any extension or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waives notice
of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not
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be affected by (a) the failure of any Holder or the Trustee to assert any claim
or demand or to enforce any right or remedy against the Company or any other
Person under this Indenture, the Securities or any other agreement or otherwise;
(b) any extension or renewal of any thereof; (c) any rescission, waiver,
amendment or modification of any of the terms or provisions of this Indenture,
the Securities or any other agreement; (d) the release of any security held by
any Holder or the Trustee for the Obligations or any of them; (e) the failure of
any Holder or the Trustee to exercise any right or remedy against any other
guarantor of the Obligations; or (f) any change in the ownership of such
Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guaranty herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Holder or the Trustee to any security held for
payment of the Obligations.
Each Subsidiary Guaranty is, to the extent and in the manner set
forth in Article 12, subordinated and subject in right of payment to the prior
payment in full of the principal of and premium, if any, and interest on all
Senior Indebtedness of the Subsidiary Guarantor giving such Subsidiary Guaranty
and each Subsidiary Guaranty is made subject to such provisions of this
Indenture.
Except as expressly set forth in Sections 8.01(b), 11.02 and 11.06,
the obligations of each Subsidiary Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not
be subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Subsidiary Guarantor herein shall not be discharged or
impaired or otherwise affected by the failure of any Holder or the Trustee to
assert any claim or demand or to enforce any remedy under this Indenture, the
Securities or any other agreement, by any waiver or modification of any thereof,
by any default, failure or delay, willful or otherwise, in the performance of
the obligations, or by any other act or thing or omission or delay to do any
other act or thing which may or might in any manner or to any extent vary the
risk of such Subsidiary Guarantor or would otherwise operate as a
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90
discharge of such Subsidiary Guarantor as a matter of law or equity.
Each Subsidiary Guarantor further agrees that its Guarantee herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal of or interest on any Obligation
is rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Obligation, each Subsidiary Guarantor hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid amount of such Obligations, (ii) accrued and unpaid
interest on such Obligations (but only to the extent not prohibited by law) and
(iii) all other monetary Obligations of the Company to the Holders and the
Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled to
any right of subrogation in respect of any Obligations guaranteed hereby until
payment in full of all Obligations and all obligations to which the Obligations
are subordinated as provided in Article 12. Each Subsidiary Guarantor further
agrees that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the Obligations Guaranteed hereby may be
accelerated as provided in Article 6 for the purposes of such Subsidiary
Guarantor's Subsidiary Guaranty herein, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such Obligations (whether or not due
and payable) shall forthwith become due and payable by such Subsidiary Guarantor
for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
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SECTION 11.02. LIMITATION ON LIABILITY. Any term or provision of
this Indenture to the contrary notwithstanding, the maximum, aggregate amount of
the Obligations guaranteed hereunder by any Subsidiary Guarantor shall not
exceed the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 11.03. SUCCESSORS AND ASSIGNS. This Article 11 shall be
binding upon each Subsidiary Guarantor and its successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
SECTION 11.04. NO WAIVER. Neither a failure nor a delay on the part
of either the Trustee or the Holders in exercising any right, power or privilege
under this Article 11 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 11 at law,
in equity, by statute or otherwise.
SECTION 11.05. MODIFICATION. No modification, amendment or waiver of
any provision of this Article 11, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
SECTION 11.06. RELEASE OF SUBSIDIARY GUARANTOR. Upon the sale
(including any sale pursuant to any exercise of remedies by a holder of Senior
Indebtedness) or other disposition (including by way of consolidation or merger)
of a Subsidiary Guarantor or the sale or disposition of all or
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92
substantially all the assets of a Subsidiary Guarantor (in each case other than
to the Company or an Affiliate of the Company), or the designation of such
Subsidiary Guarantor as an Unrestricted Subsidiary pursuant to the terms hereof,
such Subsidiary Guarantor shall be deemed released from all obligations under
this Article 11 without any further action required on the part of the Trustee
or any Holder. At the request of the Company, the Trustee shall execute and
deliver an appropriate instrument evidencing such release.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTIES
SECTION 12.01. AGREEMENT TO SUBORDINATE. Each Subsidiary Guarantor
agrees, and each Securityholder by accepting a Security agrees, that the
Obligations of such Subsidiary Guarantor are subordinated in right of payment,
to the extent and in the manner provided in this Article 12, to the prior
payment in full in cash of all Senior Indebtedness of such Subsidiary Guarantor
and that the subordination is for the benefit of and enforceable by the holders
of such Senior Indebtedness. The Obligations of a Subsidiary Guarantor shall in
all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of
such Subsidiary Guarantor and only Senior Indebtedness of such Subsidiary
Guarantor (including such Subsidiary Guarantor's Guarantee of Senior
Indebtedness of the Company) shall rank senior to the Obligations of such
Subsidiary Guarantor in accordance with the provisions set forth herein.
SECTION 12.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any
payment or distribution of the assets of any Subsidiary Guarantor to creditors
upon any liquidation or a dissolution or winding up of such Guarantor or upon
any assignment for the benefit of creditors or marshalling of assets for such
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor or its
property:
(1) holders of Senior Indebtedness of such Subsidiary Guarantor
shall be entitled to receive payment in full in cash of all Obligations
with respect to such Senior Indebtedness (including all interest accruing
subsequent to the filing of a petition in bankruptcy at the rate provided
for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) in
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93
cash or cash equivalents before Securityholders shall be entitled to
receive any payment or distribution with respect to any Obligations of
such Subsidiary Guarantor;
(2) until all Obligations with respect to Senior Indebtedness of any
Subsidiary Guarantor are paid in full in cash or cash equivalents, any
payment or distribution to which Securityholders would be entitled but for
this Article 12 shall be made to holders of such Senior Indebtedness as
their interests may appear, except that Securityholders may, in any
proceeding of the type described in Section 12.02 with respect to such
Guarantor, receive securities of the Company as provided in clause (2) of
Section 10.02, which, in the case of debt securities of the Company, may
be guaranteed by the Subsidiary Guarantors on substantially the same basis
as provided in Article 11, so long as such guarantees are expressly
subordinated to all Senior Indebtedness at least to the same extent as
provided in this Article 12. Securityholders may receive shares of stock
and any debt securities of such Subsidiary Guarantor that are subordinated
to Senior Indebtedness, and to any debt securities received by holders of
Senior Indebtedness, of such Subsidiary Guarantor to at least the same
extent as the Obligations of such Subsidiary Guarantor are subordinated to
Senior Indebtedness of such Subsidiary Guarantor to the payment of all
Senior Indebtedness of the Company and which, in any case, do not mature
or become subject to a mandatory redemption obligation prior to the
maturity of the Securities; and
(3) if a distribution is made to the Securityholders that, due to
the subordination provisions of this Article 12, should not have been made
to them, such Securityholders are required to hold it in trust for the
holders of Senior Indebtedness of the Subsidiary Guarantors and pay it
over to them as their interests may appear.
SECTION 12.03. DEFAULT ON SENIOR INDEBTEDNESS OF SUBSIDIARY
GUARANTOR. No Subsidiary Guarantor may make any payment (in cash, property or
other assets) pursuant to any of its Obligations or repurchase, redeem or
otherwise retire or defease any Securities or other Obligations (collectively,
"pay its Subsidiary Guaranty") if (1) any Designated Senior Indebtedness of the
Company is not paid when due or (2) any other default on Designated Senior
Indebtedness of the Company occurs and the maturity of such
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94
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, (x) the default has been cured or waived and any such
acceleration has been rescinded or (y) such Designated Senior Indebtedness has
been discharged or paid in full in cash; PROVIDED, HOWEVER, that any Subsidiary
Guarantor may pay its Subsidiary Guaranty without regard to the foregoing if
such Subsidiary Guarantor and the Trustee receive written notice approving such
payment from the Representatives of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (1) or (2) of this
sentence has occurred and is continuing. No Subsidiary Guarantor may pay its
Subsidiary Guaranty during the continuance of any Payment Blockage Period after
receipt by the Company and the Trustee of a Payment Notice under Section 10.03.
Notwithstanding the provisions described above, unless the holders of Designated
Senior Indebtedness giving such Payment Notice or the Representative of such
holders shall have accelerated the maturity of such Designated Senior
Indebtedness, or any payment default described in clause (1) or (2) of this
Section exists, any Subsidiary Guarantor may resume payments pursuant to its
Subsidiary Guaranty after termination of such Payment Blockage Period.
SECTION 12.04. DEMAND FOR PAYMENT. If a demand for payment is made
on a Subsidiary Guarantor pursuant to Article 11, the Trustee shall promptly
notify the holders of the Designated Senior Indebtedness (or their
Representatives) of such demand. If any Designated Senior Indebtedness is
outstanding at the time of such acceleration, neither the Company nor any
Subsidiary Guarantor may pay the Securities until five Business Days after the
respective Representatives of each of the issues of Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Securities only if this Indenture otherwise permits payment at that time.
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a
distribution is made to Securityholders that because of this Article 12 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of the relevant Senior Indebtedness and pay
it over to them or their Representatives as their interests may appear.
SECTION 12.06. SUBROGATION. After all Senior Indebtedness of a
Subsidiary Guarantor is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to Senior
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95
Indebtedness. A distribution made under this Article 12 to holders of such
Senior Indebtedness which otherwise would have been made to Securityholders is
not, as between the relevant Subsidiary Guarantor and Securityholders, a payment
by such Subsidiary Guarantor on such Senior Indebtedness.
SECTION 12.07. RELATIVE RIGHTS. This Article 12 defines the relative
rights of Securityholders and holders of Senior Indebtedness of a Subsidiary
Guarantor. Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and Securityholders,
the obligation of such Subsidiary Guarantor, which is absolute and
unconditional, to pay the Obligations to the extent set forth in Article
11 or the relevant Subsidiary Guaranty; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by such Subsidiary Guarantor under the
Obligations, subject to the rights of holders of Senior Indebtedness of
such Subsidiary Guarantor to receive distributions otherwise payable to
Securityholders.
SECTION 12.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No
right of any holder of Senior Indebtedness of any Subsidiary Guarantor to
enforce the subordination of the Obligations of such Subsidiary Guarantor shall
be impaired by any act or failure to act by such Subsidiary Guarantor or by its
failure to comply with this Indenture.
SECTION 12.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding
Section 12.03, the Trustee or Paying Agent may continue to make payments on any
Subsidiary Guaranty and shall not be charged with knowledge of the existence of
facts that would prohibit the making of any such payments unless, not less than
two Business Days prior to the date of such payment, a Trust Officer of the
Trustee receives written notice satisfactory to it that payments may not be made
under this Article 12. The Company, the relevant Subsidiary Guarantor, the
Registrar or co-registrar, the Paying Agent, a Representative or a holder of
Senior Indebtedness of any Subsidiary Guarantor may give the notice; PROVIDED,
HOWEVER, that, if an issue of Senior Indebtedness of any Subsidiary Guarantor
has a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not the Trustee. The
Registrar and
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96
co-registrar and the Paying Agent may do the same with like rights. The Trustee
shall be entitled to all the rights set forth in this Article 12 with respect to
any Senior Indebtedness of any Subsidiary Guarantor which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 12 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
of any Subsidiary Guarantor, the distribution may be made and the notice given
to their Representative (if any).
SECTION 12.11. ARTICLE 12 NOT TO PREVENT DEFAULTS UNDER A SUBSIDIARY
GUARANTY OR LIMIT RIGHT TO DEMAND PAYMENT. The failure to make a payment
pursuant to a Subsidiary Guaranty by reason of any provision in this Article 12
shall not be construed as preventing the occurrence of a default under such
Subsidiary Guaranty. Nothing in this Article 12 shall have any effect on the
right of the Securityholders or the Trustee to make a demand for payment on any
Subsidiary Guarantor pursuant to Article 11 or the relevant Subsidiary Guaranty.
SECTION 12.12. TRUSTEE ENTITLED TO RELY. Upon any payment or
distribution pursuant to this Article 12, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
12.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Security holders or (iii) upon the Representatives for the holders of Senior
Indebtedness of any Subsidiary Guarantor for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
such Senior Indebtedness and other indebtedness of such Subsidiary Guarantor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 12. In the
event that the Trustee determines, in good faith, that evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness of any
Subsidiary Guarantor to participate in any payment or distribution pursuant to
this Article 12, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
of such Subsidiary
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Guarantor held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article 12, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
provisions of Sections 7.01 and 7.02 shall be applicable to all actions or
omissions of actions by the Trustee pursuant to this Article 12.
SECTION 12.13. TRUSTEE TO EFFECTUATE SUBORDINATION. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of any Subsidiary Guarantor as provided in this Article 12
and appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 12.14. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS OF SUBSIDIARY GUARANTOR. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness of any Subsidiary Guarantor
and shall not be liable to any such holders if it shall mistakenly pay over or
distribute to Securityholders or the Company or any other Person, money or
assets to which any holders of such Senior Indebtedness shall be entitled by
virtue of this Article 12 or otherwise.
SECTION 12.15. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of any Subsidiary Guarantor, whether such Senior Indebtedness was
created or acquired before or after the issuance of the Securities, to acquire
and continue to hold, or to continue to hold, such Senior Indebtedness and such
holder of Senior Indebtedness shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
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ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS. If any provision of
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. NOTICES. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company or any Subsidiary Guarantor:
Anteon Corporation
3211 Jermantown Road, Suite 700
Fairfax, VA 22030-2801
Attention of: General Counsel
if to the Trustee:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Attention of: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Security holder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
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99
SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. WHEN SECURITIES DISREGARDED. In determining whether
the Holders of the required principal
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amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company shall be disregarded and deemed not to be outstanding, except that, for
the purpose of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities which the Trustee knows
are so owned shall be so disregarded. Also, subject to the fore going, only
Securities outstanding at the time shall be considered in any such
determination.
SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 13.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 13.09. GOVERNING LAW. This Indenture and the Securities
shall be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 13.10. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 13.11. SUCCESSORS. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 13.12. MULTIPLE ORIGINALS. The parties may sign any number
of copies of this Indenture. Each
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signed copy shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
SECTION 13.13. TABLE OF CONTENTS; HEADINGS. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
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IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
ANTEON CORPORATION,
by
------------------------
Name:
Title:
VECTOR DATA SYSTEMS, INC.,
by
------------------------
Name:
Title:
TECHMATICS, INC.,
by
------------------------
Name:
Title:
IBJ WHITEHALL BANK & TRUST
COMPANY,
by
------------------------
Name:
Title:
<PAGE>
Exhibit 4.2
$100,000,000
ANTEON CORPORATION
12% SENIOR SUBORDINATED NOTES DUE 2009
REGISTRATION RIGHTS AGREEMENT
May 6, 1999
Credit Suisse First Boston Corporation
Deutsche Bank Securities Inc.
Legg Mason Wood Walker, Incorporated
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Dear Sirs:
Anteon Corporation, a Virginia corporation (the "ISSUER"), proposes to
issue and sell to Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and Legg Mason Wood Walker, Incorporated (collectively, the
"INITIAL PURCHASERS"), upon the terms set forth in a purchase agreement of even
date herewith (the "PURCHASE AGREEMENT"), $100,000,000 aggregate principal
amount of its 12% Senior Subordinated Notes Due 2009 (the "INITIAL SECURITIES")
to be unconditionally guaranteed on a senior subordinated basis by each of the
Issuer's domestic wholly-owned subsidiaries (the "GUARANTORS" and, together with
the Issuer, the "COMPANY"). The Initial Securities will be issued pursuant to an
Indenture, dated as of May 11, 1999 (the "INDENTURE"), among the Issuer, the
Guarantors and IBJ Whitehall Bank & Trust Company, as trustee (the "TRUSTEE").
As an inducement to the Initial Purchasers to enter into the Purchase Agreement,
the Company agrees with the Initial Purchasers, for the benefit of the holders
of the Initial Securities (including, without limitation, the Initial
Purchasers), the Exchange Securities (as defined below) and the Private Exchange
Securities (as defined below) (collectively, the "HOLDERS"), as follows:
1. REGISTERED EXCHANGE OFFER. The Company shall, at its own cost, prepare
and, not later than 90 days after (or if the 90th day is not a business day, the
first business day thereafter) the date of original issue of the Initial
Securities (the "ISSUE DATE"), file with the Securities and Exchange Commission
(the "COMMISSION") a registration statement (the "EXCHANGE OFFER REGISTRATION
STATEMENT") on an appropriate form under the Securities Act of 1933, (the
"SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED EXCHANGE
OFFER") to the Holders of Transfer Restricted Securities (as defined in Section
6 hereof), who are not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer, to issue and deliver to such
Holders, in exchange for the Initial Securities, a like aggregate principal
amount of debt securities (the "EXCHANGE SECURITIES") of the Company issued
under the Indenture and identical in all material respects to the Initial
Securities (except for the transfer restrictions relating to the Initial
Securities and the provisions relating to the matters described in Section 6
hereof) that would be registered under the Securities Act. The Company shall use
its best efforts to cause such Exchange Offer Registration Statement to become
effective under the Securities Act within 150 days (or if the 150th day is not a
business day, the first business day thereafter) after the Issue Date of the
Initial Securities and shall keep the Exchange Offer Registration Statement
effective for not less than 30 days (or longer, if required by applicable law)
after the date notice of the Registered Exchange Offer is mailed to the Holders
(such period being called the "EXCHANGE OFFER REGISTRATION PERIOD").
If the Company effects the Registered Exchange Offer, the Company will be
entitled to close the Registered Exchange Offer 30 days after the commencement
thereof provided that the Company has accepted all the Initial Securities
theretofore validly tendered in accordance with the terms of the Registered
Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Securities (as defined in Section 6
<PAGE>
hereof) electing to exchange the Initial Securities for Exchange Securities
(assuming that such Holder is not an affiliate of the Company within the meaning
of the Securities Act, acquires the Exchange Securities in the ordinary course
of such Holder's business and has no arrangements with any person to participate
in the distribution of the Exchange Securities and is not prohibited by any law
or policy of the Commission from participating in the Registered Exchange Offer)
to trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States.
The Company acknowledges that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder which is a broker-dealer
electing to exchange Initial Securities, acquired for its own account as a
result of market making activities or other trading activities, for Exchange
Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus
containing the information set forth in (a) Annex A hereto on the cover, (b)
Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section, and (c) Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell
Securities (as defined below) acquired in exchange for Initial Securities
constituting any portion of an unsold allotment, is required to deliver a
prospectus containing the information required by Items 507 or 508 of Regulation
S-K under the Securities Act, as applicable, in connection with such sale.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; PROVIDED, HOWEVER, that (i) in the
case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be
the lesser of 180 days and the date on which all Exchanging Dealers and the
Initial Purchasers have sold all Exchange Securities held by them (unless such
period is extended pursuant to Section 3(j) below) and (ii) the Company shall
make such prospectus and any amendment or supplement thereto available to any
broker-dealer for use in connection with any resale of any Exchange Securities
for a period of not less than 180 days after the consummation of the Registered
Exchange Offer.
If, upon consummation of the Registered Exchange Offer, an Initial
Purchaser holds Initial Securities acquired by it as part of its initial
distribution, the Company, simultaneously with the delivery of the Exchange
Securities pursuant to the Registered Exchange Offer, shall issue and deliver to
such Initial Purchaser upon the written request of such Initial Purchaser, in
exchange (the "PRIVATE EXCHANGE") for the Initial Securities held by such
Initial Purchaser, a like principal amount of debt securities of the Company
issued under the Indenture and identical in all material respects (including the
existence of restrictions on transfer under the Securities Act and the
securities laws of the several states of the United States, but excluding
provisions relating to the matters described in Section 6 hereof) to the Initial
Securities (the "PRIVATE EXCHANGE SECURITIES"). The Initial Securities, the
Exchange Securities and the Private Exchange Securities are herein collectively
called the "SECURITIES".
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30
days (or longer, if required by applicable law) after the date notice
thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, the City of New York,
which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York time, on the last business day on which
the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all material respects with all applicable
laws.
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As soon as practicable after the close of the Registered Exchange Offer or
the Private Exchange, as the case may be, the Company shall:
(x) accept for exchange all the Securities validly tendered and not
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(y) deliver to the Trustee for cancellation all the Initial
Securities so accepted for exchange; and
(z) cause the Trustee to authenticate and deliver promptly to each
Holder of the Initial Securities, Exchange Securities or Private Exchange
Securities, as the case may be, equal in principal amount to the Initial
Securities of such Holder so accepted for exchange.
The Indenture will provide that the Exchange Securities will not be
subject to the transfer restrictions set forth in the Indenture and that all the
Securities will vote and consent together on all matters as one class and that
none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Initial Securities surrendered in exchange therefor or, if no interest has been
paid on the Initial Securities, from the date of original issue of the Initial
Securities. No interest shall accrue on any Initial Security surrendered in the
Exchange Offer from and after the day that interest begins to accrue on the
Exchange Securities issued in exchange therefor.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company or if it is an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Securities and (v) if such Holder is a
broker-dealer, that it will receive Exchange Securities for its own account in
exchange for Initial Securities that were acquired as a result of market-making
activities or other trading activities and that it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Securities.
Notwithstanding any other provisions hereof, the Company will ensure that
(i) any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
2. SHELF REGISTRATION. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Company
is not permitted to effect a Registered Exchange Offer, as contemplated by
Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within
180 days of the Issue Date, (iii) any Initial Purchaser so requests within 10
business days following consummation of the Registered Exchange Offer with
respect to the Initial Securities (or the Private Exchange Securities) not
eligible to be exchanged for Exchange Securities in the Registered Exchange
Offer and held by it following consummation of the Registered Exchange Offer or
(iv) any Holder (other than an Exchanging Dealer) notifies the Company within 10
business days following consummation of the Registered Exchange Offer that such
Holder is not eligible to participate in the Registered Exchange Offer or such
Holder may not resell the Exchange Notes acquired by it in the Registered
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate
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<PAGE>
or available for such resales by such Holder; or such Holder is a broker-dealer
and holds Notes that are part of an unsold allotment from the original sale of
the Notes, the Company shall take the following actions:
(a) The Company shall, at its cost, as promptly as practicable (but
in no event more than 30 days after so required or requested pursuant to
this Section 2) file with the Commission and thereafter shall use its best
efforts to cause to be declared effective a registration statement (the
"SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer
Registration Statement, a "REGISTRATION STATEMENT") on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Securities (as defined in Section 6 hereof) by the Holders
thereof from time to time in accordance with the methods of distribution
set forth in the Shelf Registration Statement and Rule 415 under the
Securities Act (hereinafter, the "SHELF REGISTRATION"); PROVIDED, HOWEVER,
that no Holder (other than an Initial Purchaser) shall be entitled to have
the Securities held by it covered by such Shelf Registration Statement
unless such Holder agrees in writing to be bound by all the provisions of
this Agreement applicable to such Holder.
(b) Subject to Section 3 (j), the Company shall use its best efforts
to keep the Shelf Registration Statement continuously effective in order
to permit the prospectus included therein to be lawfully delivered by the
Holders of the relevant Securities, for a period of two years (or for such
longer period if extended pursuant to Section 3(j) below) from the date of
its effectiveness or such shorter period that will terminate when all the
Securities covered by the Shelf Registration Statement (i) have been sold
pursuant thereto or (ii) are no longer restricted securities (as defined
in Rule 144 under the Securities Act, or any successor rule thereof) or
are saleable pursuant to Rule 144k. The Company shall be deemed not to
have used its best efforts to keep the Shelf Registration Statement
effective during the requisite period if it voluntarily takes any action
that would result in Holders of Securities covered thereby not being able
to offer and sell such Securities during that period, unless such action
is required by applicable law.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, or such amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3. REGISTRATION PROCEDURES. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, any Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior
to the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and, in the event that an Initial Purchaser
(with respect to any portion of an unsold allotment from the original
offering) is participating in the Registered Exchange Offer or the Shelf
Registration Statement, the Company shall use its best efforts to reflect
in each such document, when so filed with the Commission, such comments as
such Initial Purchaser reasonably may propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B hereto in
the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
(iii) if requested by an Initial Purchaser, include the information
required by Items 507 or 508 of Regulation S-K under the Securities Act,
as applicable, in the prospectus forming a part of the Exchange Offer
Registration Statement; (iv) include within the prospectus contained in
the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which
shall contain a summary statement of the positions taken or policies made
by the staff of the Commission with respect to the potential "underwriter"
status of any broker-dealer that is the beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")) of Exchange Securities received by such broker-dealer in
the Registered Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether
such positions or policies have been publicly disseminated by the staff of
the Commission or such positions or policies, in the reasonable judgment
of the Initial Purchasers based upon advice of counsel (which may be
in-house counsel),
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<PAGE>
represent the prevailing views of the staff of the Commission; and (v) in
the case of a Shelf Registration Statement, include the names of the
Holders who propose to sell Securities pursuant to the Shelf Registration
Statement as selling securityholders.
(b) The Company shall give written notice to the Initial Purchasers,
the Holders of the Securities and any Participating Broker-Dealer from
whom the Company has received prior written notice that it will be a
Participating Broker-Dealer in the Registered Exchange Offer (which notice
pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction
to suspend the use of the prospectus until the requisite changes have been
made):
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of
the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus in
order that the Registration Statement or the prospectus does not
contain an untrue statement of a material fact nor omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading.
(c) The Company shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least
one copy of the Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and each
Initial Purchaser, and to any other Holder who so requests, without
charge, at least one copy of the Exchange Offer Registration Statement and
any post-effective amendment thereto, including financial statements and
schedules, and, if any Initial Purchaser or any such Holder requests, all
exhibits thereto (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the prospectus (including
each preliminary prospectus) included in the Shelf Registration Statement
and any amendment or supplement thereto as such person may reasonably
request. The Company consents, subject to the provisions of this
Agreement, to the use of the prospectus or any amendment or supplement
thereto by each of the selling Holders of the Securities in connection
with the offering and sale of the Securities covered by the prospectus, or
any amendment or supplement thereto, included in the Shelf Registration
Statement.
(g) The Company shall deliver to each Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement and any amendment or supplement
thereto as such persons may reasonably request. The Company consents,
subject to the provisions of this Agreement, to the use of the prospectus
or any amendment or supplement thereto by any Initial Purchaser, if
necessary, any Participating Broker-Dealer and such other persons required
to deliver a prospectus following the Registered Exchange Offer in
connection with the offering and sale of the Exchange
5
<PAGE>
Securities covered by the prospectus, or any amendment or supplement
thereto, included in such Exchange Offer Registration Statement.
(h) Prior to any public offering of the Securities pursuant to any
Registration Statement the Company shall register or qualify or cooperate
with the Holders of the Securities included therein and their respective
counsel in connection with the registration or qualification of the
Securities for offer and sale under the securities or "blue sky" laws of
such states of the United States as any Holder of the Securities
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities covered by such Registration Statement; PROVIDED,
HOWEVER, that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it is not then so qualified or
(ii) take any action which would subject it to general service of process
or to taxation in any jurisdiction where it is not then so subject.
(i) The Company shall cooperate with the Holders of the Securities
to facilitate the timely preparation and delivery of certificates
representing the Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and (consistent with the
provisions of the Indenture) in such denominations and registered in such
names as the Holders may request a reasonable period of time prior to
sales of the Securities pursuant to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Company
is required to maintain an effective Registration Statement, the Company
shall promptly prepare and file a post-effective amendment to the
Registration Statement or a supplement to the related prospectus and any
other required document so that, as thereafter delivered to Holders of the
Securities or purchasers of Securities, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
If the Company notifies the Initial Purchasers, the Holders of the
Securities and any known Participating Broker-Dealer in accordance with
paragraphs (ii) through (v) of Section 3(b) above to suspend the use of
the prospectus until the requisite changes to the prospectus have been
made, then the Initial Purchasers, the Holders of the Securities and any
such Participating Broker-Dealers shall suspend use of such prospectus
(and shall keep confidential the cause of such notice for so long as such
cause is not otherwise publicly known), and the period of effectiveness of
the Shelf Registration Statement provided for in Section 2(b) above and
the Exchange Offer Registration Statement provided for in Section 1 above
shall each be extended by the number of days from and including the date
of the giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer shall have received such amended or supplemented prospectus
pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Initial
Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, and provide the applicable trustee with printed
certificates for the Initial Securities, the Exchange Securities or the
Private Exchange Securities, as the case may be, in a form eligible for
deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act, no later
than 45 days after the end of a 12-month period (or 90 days, if such
period is a fiscal year) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the
Registration Statement, which statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and containing
such changes, if any, as shall be necessary for such qualification. In the
event that such qualification would require the appointment of a new
trustee under the Indenture, the Company shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of the
Securities as the Company may from time to time reasonably require for
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inclusion in the Shelf Registration Statement, and the Company may exclude
from such registration the Securities of any Holder that unreasonably
fails to furnish such information within a reasonable time after receiving
such request.
(o) The Company shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form) and
take all such other action, if any, as any Holder of the Securities shall
reasonably request in order to facilitate the disposition of the
Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall (i)
make reasonably available for inspection by the Holders of the Securities,
any underwriter participating in any disposition pursuant to the Shelf
Registration Statement and any attorney, accountant or other agent
retained by the Holders of the Securities or any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and (ii) cause the Company's officers,
directors, employees, accountants and auditors to supply all relevant
information reasonably requested by the Holders of the Securities or any
such underwriter, attorney, accountant or agent in connection with the
Shelf Registration Statement, in each case, as shall be reasonably
necessary to enable such persons, to conduct a reasonable investigation
within the meaning of Section 11 of the Securities Act; PROVIDED, HOWEVER,
that the foregoing inspection and information gathering shall be
coordinated on behalf of the Initial Purchasers by you and on behalf of
the other parties, by one counsel designated by and on behalf of such
other parties as described in Section 4 hereof; PROVIDED FURTHER, HOWEVER,
that the conduct of the foregoing inspection and information gathering
shall be subject to the execution by all persons party to such inspection
and information gathering of a reasonable confidentiality undertaking in
customary form with respect to confidential and proprietary information of
the Company.
(q) In the case of any Shelf Registration, the Company, if requested
by any Holder of Securities covered thereby, shall cause (i) its counsel
to deliver an opinion and updates thereof relating to the Securities in
customary form addressed to such Holders and the managing underwriters, if
any, thereof and dated, in the case of the initial opinion, the effective
date of such Shelf Registration Statement (it being agreed that the
matters to be covered by such opinion shall include, without limitation,
the due incorporation and good standing of the Company and its
subsidiaries; the qualification of the Company and its subsidiaries to
transact business as foreign corporations; the due authorization,
execution and delivery of the relevant agreement of the type referred to
in Section 3(o) hereof; the due authorization, execution, authentication
and issuance, and the validity and enforceability, of the applicable
Securities; the absence of material legal or governmental proceedings
involving the Company and its subsidiaries; the absence of governmental
approvals required to be obtained in connection with the Shelf
Registration Statement, the offering and sale of the applicable
Securities, or any agreement of the type referred to in Section 3(o)
hereof; the compliance as to form of such Shelf Registration Statement and
any documents incorporated by reference therein and of the Indenture with
the requirements of the Securities Act and the Trust Indenture Act,
respectively; and, as of the date of the opinion and as of the effective
date of the Shelf Registration Statement or most recent post-effective
amendment thereto, as the case may be, the absence from such Shelf
Registration Statement and the prospectus included therein, as then
amended or supplemented, and from any documents incorporated by reference
therein of an untrue statement of a material fact or the omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of any such documents,
in light of the circumstances existing at the time that such documents
were filed with the Commission under the Exchange Act); (ii) its officers
to execute and deliver all customary documents and certificates and
updates thereof requested by any underwriters of the applicable Securities
and (iii) its independent public accountants to provide to the selling
Holders of the applicable Securities and any underwriter therefor a
comfort letter in customary form and covering matters of the type
customarily covered in comfort letters in connection with primary
underwritten offerings, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards
No. 72 (and any other applicable pronouncements).
(r) In the case of the Registered Exchange Offer, if requested by
any Initial Purchaser or any known Participating Broker-Dealer, the
Company shall cause (i) its counsel to deliver to such Initial Purchaser
or such Participating Broker-Dealer a signed opinion or opinions in the
form set forth in Section 6(c) of the Purchase Agreement with such changes
as are customary in connection with the preparation of a Registration
Statement and (ii) its independent public accountants to deliver to such
Initial Purchaser or such Participating Broker-Dealer a comfort letter, in
customary
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form, meeting the requirements as to the substance thereof as set forth in
Section 6(a) of the Purchase Agreement, with appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Initial Securities by Holders to the
Company (or to such other Person as directed by the Company) in exchange
for the Exchange Securities or the Private Exchange Securities, as the
case may be, the Company shall mark, or caused to be marked, on the
Initial Securities so exchanged that such Initial Securities are being
canceled in exchange for the Exchange Securities or the Private Exchange
Securities, as the case may be; in no event shall the Initial Securities
be marked as paid or otherwise satisfied.
(t) The Company will use its best efforts to (a) if the Initial
Securities have been rated prior to the initial sale of such Initial
Securities, confirm such ratings will apply to the Securities covered by a
Registration Statement, or (b) if the Initial Securities were not
previously rated, cause the Securities covered by a Registration Statement
to be rated with the appropriate rating agencies, if so requested by
Holders of a majority in aggregate principal amount of Securities covered
by such Registration Statement, or by the managing underwriters, if any.
(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member of
an underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Conduct Rules (the "RULES") of the National
Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a
Holder of such Securities or as an underwriter, a placement or sales agent
or a broker or dealer in respect thereof, or otherwise, the Company will
assist such broker-dealer in complying with the requirements of such
Rules, including, without limitation, by (i) if such Rules, including Rule
2720, shall so require, engaging a "qualified independent underwriter" (as
defined in Rule 2720) to participate in the preparation of the
Registration Statement relating to such Securities, to exercise usual
standards of due diligence in respect thereto and, if any portion of the
offering contemplated by such Registration Statement is an underwritten
offering or is made through a placement or sales agent, to recommend the
yield of such Securities, (ii) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters provided
in Section 5 hereof and (iii) providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply
with the requirements of the Rules.
(v) The Company shall use its best efforts to take all other steps
necessary to effect the registration of the Securities covered by a
Registration Statement contemplated hereby.
4. REGISTRATION EXPENSES. The Company shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 1
through 3 hereof, whether or not the Registered Exchange Offer or a Shelf
Registration is filed or becomes effective, and, in the event of a Shelf
Registration, shall bear or reimburse the Holders of the Securities covered
thereby for the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Securities
covered thereby to act as counsel for the Holders of the Securities in
connection therewith.
5. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless
each Holder of the Securities, any Participating Broker-Dealer and each person,
if any, who controls such Holder or such Participating Broker-Dealer within the
meaning of the Securities Act or the Exchange Act (each Holder, any
Participating Broker-Dealer and such controlling persons are referred to
collectively as the "INDEMNIFIED PARTIES") from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
Shelf Registration, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse, as
incurred, the Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereof; PROVIDED, HOWEVER, that
(i) the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration in reliance
upon and in conformity with written information pertaining to such Holder and
furnished to the Company by or on behalf of such Holder specifically for
inclusion therein
8
<PAGE>
and (ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus relating to a Shelf
Registration Statement, the indemnity agreement contained in this subsection (a)
shall not inure to the benefit of any Holder or Participating Broker-Dealer from
whom the person asserting any such losses, claims, damages or liabilities
purchased the Securities concerned, to the extent that a prospectus relating to
such Securities was required to be delivered by such Holder or Participating
Broker-Dealer under the Securities Act in connection with such purchase and any
such loss, claim, damage or liability of such Holder or Participating
Broker-Dealer results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Securities
to such person, a copy of the final prospectus if the Company had previously
furnished copies thereof to such Holder or Participating Broker-Dealer; PROVIDED
FURTHER, HOWEVER, that this indemnity agreement will be in addition to any
liability which the Company may otherwise have to such Indemnified Party. The
Company shall also indemnify underwriters, their officers and directors and each
person who controls such underwriters within the meaning of the Securities Act
or the Exchange Act to the same extent as provided above with respect to the
indemnification of the Holders of the Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act from
and against any losses, claims, damages or liabilities or any actions in respect
thereof, to which the Company or any such controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or omission or alleged
untrue statement or omission was made in reliance upon and in conformity with
written information pertaining to such Holder and furnished to the Company by or
on behalf of such Holder specifically for inclusion therein; and, subject to the
limitation set forth immediately preceding this clause, shall reimburse, as
incurred, the Company for any legal or other expenses reasonably incurred by the
Company or any such controlling person in connection with investigating or
defending any loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability which such Holder may
otherwise have to the Company or any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this Section 5 of
notice of the commencement of any action or proceeding (including a governmental
investigation), such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 5, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party (i) will not relieve it from any liability under
subsection (a) or (b) above unless and to the extent it did not otherwise learn
of such action and such failure results in the forfeiture by the Indemnifying
Party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action and does not include a statement as to any admission of fault,
culpability or failure to act by or on behalf of any Indemnified Party.
(d) If the indemnification provided for in this Section 5 is unavailable
or insufficient to hold harmless an indemnified party under subsections (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the exchange of the Securities, pursuant to
the Registered Exchange Offer, or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by
9
<PAGE>
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or such Holder or such other indemnified party, as the case may
be, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any action
or claim which is the subject of this subsection (d). Notwithstanding any other
provision of this Section 5(d), the Holders of the Securities shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Securities pursuant to a
Registration Statement exceeds the amount of damages which such Holders have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each person,
if any, who controls such indemnified party within the meaning of the Securities
Act or the Exchange Act shall have the same rights to contribution as such
indemnified party and each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act shall have the same rights to
contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale of
the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a) Additional
interest (the "Additional Interest") with respect to the Initial Securities and
the Private Exchange Securities shall be assessed as follows if any of the
following events occur (each such event in clauses (i) through (iii) below a
"Registration Default"):
(i) If, on August 9, 1999 (90 days after the issue date of the
Initial Securities), neither the Exchange Offer Registration Statement nor
a Shelf Registration Statement has been filed with the Commission;
(ii) If, on November 8, 1999 (180 days after the issue date of the
Initial Securities), neither the Registered Exchange Offer is consummated
with respect to all Initial Securities tendered as of such date nor, if
required in lieu thereof, the Shelf Registration Statement is declared
effective by the Commission; or
(iii) If after November 8, 1999, and after either the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared
effective (A) such Registration Statement thereafter ceases to be
effective, except, in the case of the Exchange Offer Registration
Statement, following the consummation of the Exchange Offer with respect
to all Securities tendered in connection therewith prior to the expiration
of the Exchange Offer or (B) such Registration Statement or the related
prospectus ceases to be usable in connection with resales of Transfer
Restricted Securities during the periods specified herein because either
(1) any event occurs as a result of which the related prospectus forming
part of such Registration Statement would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were
made not misleading, or (2) it shall be necessary to amend such
Registration Statement or supplement the related prospectus, to comply
with the Securities Act or the Exchange Act or the respective rules
thereunder.
Additional Interest shall accrue on the Initial Securities and the Private
Exchange Notes over and above the interest set forth in the title of the
Securities from and including the date on which any such Registration Default
shall occur to but excluding the date on which all such Registration Defaults
have been cured, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE")
for the first 90-day period immediately following the occurrence of such
Registration Default. The Additional Interest Rate shall increase by an
additional 0.50% per annum with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum Additional Interest
Rate of 2.0% per annum.
10
<PAGE>
(b) A Registration Default referred to in Section 6(a)(iii) hereof shall
be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events, with respect
to the Company that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
PROVIDED, HOWEVER, that in any case if such Registration Default occurs for a
continuous period in excess of 45 days, Additional Interest shall be payable in
accordance with the above paragraph from the day such Registration Default
occurs until such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) of Section 6(a) above will be payable in cash on the regular interest
payment dates with respect to the Securities. The amount of Additional Interest
will be determined by multiplying the applicable Additional Interest rate by the
principal amount of the Initial Securities or Private Exchange Notes, as the
case may be, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period (determined
on the basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
(d) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the
date on which such Security has been exchanged by a person other than a
broker-dealer for a freely transferable Exchange Security in the Registered
Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered
Exchange Offer of an Initial Security for an Exchange Note, the date on which
such Exchange Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Security has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Security is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
7. RULES 144 AND 144A. The Company shall use its best efforts to file the
reports required to be filed by it under the Securities Act and the Exchange Act
in a timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Securities that are
"restricted securities" within the meaning of Rule 144 and are not saleable
pursuant to Rule 144(k), make publicly available other information so long as
necessary to permit sales of their securities pursuant to Rules 144 and 144A.
The Company covenants that it will take such further action as any Holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). The Company will provide a
copy of this Agreement to prospective purchasers of Initial Securities
identified to the Company by the Initial Purchasers upon request. Upon the
request of any Holder of Initial Securities, the Company shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.
8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted
Securities covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering ("MANAGING UNDERWRITERS") will be selected by
the Holders of a majority in aggregate principal amount of such Transfer
Restricted Securities to be included in such offering, subject to approval by
the Company, which will not unreasonably be withheld or delayed.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
9. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given,
11
<PAGE>
except by the Company and the written consent of the Holders of a majority in
principal amount of the Securities affected by such amendment, modification,
supplement, waiver or consents.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Company.
(2) if to the Initial Purchasers:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Fax No.: (212) 325-8278
Attention: Transactions Advisory Group
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019-7475
Fax No.: (212) 474-3700
Attention: Stephen L. Burns, Esq.
(3) if to the Company, at its address as follows:
Anteon Corporation
3211 Jermantown Road, Suite 700
Fairfax, VA 22030-2801
Fax No.: (703) 246-0629
Attention: Curtis L. Schehr, Esq.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Fax No.: (212) 757-3990
Attention: Carl L. Reisner, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
(c) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
12
<PAGE>
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
(h) SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(i) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
13
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Issuer a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Initial Purchasers and the Issuer and the Guarantors in accordance
with its terms.
Very truly yours,
ANTEON CORPORATION,
by
-------------------------------------
Name:
Title:
VECTOR DATA SYSTEMS, INC.,
by
-------------------------------------
Name:
Title:
TECHMATICS, INC.,
by
-------------------------------------
Name:
Title:
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANK SECURITIES INC.
LEGG MASON WOOD WALKER, INCORPORATED
Acting on behalf of itself and as the Representative of the several Initial
Purchasers.
by: CREDIT SUISSE FIRST BOSTON CORPORATION
by
-------------------------------------
Name:
Title:
14
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Securities received in exchange for Initial Securities
where such Initial Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
15
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own account
in exchange for Initial Securities, where such Initial Securities were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
16
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Initial Securities where such Initial Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until _____, 1999, all
dealers effecting transactions in the Exchange Securities may be required to
deliver a prospectus.(1)
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Securities. Any broker-dealer that resells Exchange Securities that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Securities and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- ----------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
17
<PAGE>
ANNEX D
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ____________________________________
Address: ____________________________________
____________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Initial Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
18
<PAGE>
EXHIBIT 5.1
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
August 9, 1999
Anteon Corporation
3211 Jermantown Road
Suite 700
Fairfax, VA 22030-2801
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
In connection with the referenced Registration Statement on
Form S-4 (the "Registration Statement") filed today by Anteon Corporation (the
"Issuer"), a Virginia corporation, with the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations under the Act (the "Rules"), we have been requested to
render our opinion as to the legality of the securities being registered. The
Registration Statement registers under the Act the issuance of the Issuer's 12%
Senior Subordinated Notes due 2009 (the "Exchange Notes"). The Exchange Notes
are to be offered in exchange for the Issuer's outstanding 12% Senior
Subordinated Notes due 2009 (the "Initial Notes"), and will be issued under the
Indenture (the "Indenture"), dated as of May 11, 1999, between the Issuer,
Techmatics, Inc., Vector Data Systems Inc., and IBJ Whitehall Bank & Trust
Company, as trustee (the "Trustee").
<PAGE>
Anteon Corporation
August 9, 1999
Page -2-
Capitalized terms used and not otherwise defined in this letter have the
respective meanings given those terms in the Registration Statement.
In connection with this opinion, we have examined originals,
conformed copies or photocopies, certified or otherwise identified to our
satisfaction, of the following documents (collectively, the "Documents"):
(i) the Registration Statement (including its exhibits);
(ii) the Indenture included as Exhibit 4.1 to the
Registration Statement;
(iii) the proposed form of the Exchange Notes included as
Exhibit A to the Indenture; and
(iv) the Registration Rights Agreement, dated as of May 6,
1999, among the Issuer, Vector Data Systems, Inc.,
Techmatics, Inc., Credit Suisse First Boston
Corporation, Deutsche Bank Securities Inc. and Legg
Mason Wood Walker, Incorporated (the "Registration
Rights Agreement").
In addition, we have examined: (i) those corporate records of the Issuer that we
have considered appropriate; and (ii) those other certificates, agreements and
documents that we deemed relevant and necessary as a basis for the opinion
expressed below.
In our examination of the documents and in rendering the
opinion set forth below, we have assumed, without independent investigation, (i)
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity of the original documents of all documents
submitted to us as certified,
<PAGE>
Anteon Corporation
August 9, 1999
Page -3-
photostatic, reproduced or conformed copies of validly existing agreements or
other documents, the authenticity of all the latter documents and the legal
capacity of all individuals who have executed any of the documents which we
examined, (ii) that the Exchange Notes will be issued as described in the
Registration Statement, (iii) that the Indenture was duly authorized, executed
and delivered by the Trustee and is a valid and binding agreement of the
Trustee, (iv) that the Registration Rights Agreement was duly authorized,
executed and delivered by the Initial Purchasers and is a valid and binding
agreement of the Initial Purchasers and (v) that the Exchange Notes will be in
substantially the form attached to the Indenture and that any information
omitted from them will be properly added. We have also relied upon certificates
of public officials and officers of the Issuer.
Based on the above, and subject to the stated assumptions,
exceptions and qualifications, we are of the opinion that, when the Exchange
Notes are duly issued, authenticated and delivered in accordance with the terms
of the Indenture and the Registration Rights Agreement, the Exchange Notes will
be legal, valid and binding obligations of the Issuer enforceable against it in
accordance with their terms.
Our opinion is subject to the qualification that the
enforceability of the Indenture and the Exchange Notes may be (i) subject to
bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization,
moratorium and other similar laws affecting creditors' rights generally and (ii)
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
<PAGE>
Anteon Corporation
August 9, 1999
Page -4-
Our opinion is limited to matters of New York law. Our opinion
is rendered only with respect to the laws, and the rules, regulations and orders
under them, which are currently in effect.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to us under the heading "Legal
Matters" in the prospectus included contained in the Registration Statement. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
EXHIBIT 8.1
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
August 9, 1999
Anteon Corporation
3211 Jermantown Road
Suite 700
Fairfax, VA 22030-2801
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed today by Anteon Corporation (the "Issuer"), a
Virginia corporation, with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations under the Act (the "Rules"), we have been requested to render this
opinion. Capitalized terms used and not otherwise defined shall have the
meanings given those terms in the Registration Statement.
In this regard, we have reviewed copies of the Registration
Statement (including its exhibits) with respect to the offer by the Issuer to
exchange up to $100,000,000 in aggregate principal amount of its 12% Exchange
Senior Subordinated Notes due 2009 (the "Exchange Notes") for up to $100,000,000
in aggregate principal amount of its outstanding 12% Senior Subordinated Notes
due 2009 (the "Initial Notes"). We have also made those other investigations of
fact and law and have examined the originals, or copies authenticated to our
satisfaction, of those other
<PAGE>
Anteon Corporation
August 9, 1999
Page -2-
documents, records, certificates or other instruments as in our judgment are
necessary or appropriate to enable us to render our opinion.
Our opinion is limited to the Internal Revenue Code of 1986,
as amended (the "Code"), administrative rulings, judicial decisions, Treasury
regulations and other applicable authorities, all as in effect today. The
statutory provisions, regulations and interpretations upon which our opinion is
based are subject to change and those changes could apply retroactively. Any
change could affect the continuing validity of our opinion. We assume no
responsibility to advise you of any subsequent changes in existing law or facts,
nor do we assume any responsibility to update this opinion with respect to any
matters expressly stated in this letter, and no opinions are to be implied or
may be inferred beyond the matters expressly so stated.
Based upon and subject to the above, the legal matters and
conclusions stated in the Registration Statement under the heading "Certain
Federal Income Tax Considerations" constitute our opinion with respect to those
matters.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the heading
"Legal Matters" in the Prospectus included in the Registration Statement. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 10.1
================================================================================
STOCK PURCHASE AGREEMENT
by and among
ANTEON CORPORATION,
VECTOR DATA SYSTEMS, INC.,
THE SHAREHOLDERS OF VECTOR DATA SYSTEMS, INC.
SIGNATORIES HERETO,
and
JOSEPH J. CANE,
individually and as Sellers' Representative
for all of the outstanding stock of
VECTOR DATA SYSTEMS, INC.
Dated August 29, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Purchase and Sale of Shares......................................1
1.1 Purchase and Sale of Shares.............................1
1.2 Payment of Purchase Price...............................2
1.3 Delivery of Shares......................................2
1.4 Closing; Closing Date...................................3
1.5 Purchase Price Adjustment...............................3
1.6 Determination and Payment of Contingent Consideration...4
1.7 Escrow.................................................12
1.8 Arbitration............................................13
ARTICLE II
Representations and Warranties..................................13
2.1 Representations and Warranties of the Sellers as to
the Company............................................13
(A) Organization and Qualification of the Company....14
(B) Authority to Execute and Perform Agreement.......15
(C) Capital Stock....................................17
(D) Good Title to Shares.............................18
(E) Financial Statements.............................18
(F) Absence of Certain Changes or Events.............19
(G) Litigation and Liabilities.......................22
(H) Title to Properties; Absence of Liens, etc.......23
(I) Licenses and Registrations; Compliance with
Laws, etc........................................23
(J) Intangible Property..............................25
(K) Non-Contravention................................26
(L) Consent and Approvals............................28
(M) Employee Benefit Plans; ERISA....................28
(N) Insurance Policies...............................32
(O) Agreements.......................................33
(P) Validity of Agreements...........................35
(Q) Taxes............................................37
(R) Additional Representations.......................44
(S) Accounts and Notes Receivable....................46
(T) Potential Conflicts of Interest..................46
(U) Liabilities......................................47
(V) Real Property....................................48
(W) Labor Matters....................................49
2.2 Representations and Warranties with Respect to the
Purchaser..............................................49
(A) Organization of the Purchaser....................49
(B) Authority to Execute and Perform Agreement.......50
(C) Consents and Approvals...........................50
<PAGE>
Page
----
ARTICLE III
Additional Agreements of the Parties............................51
3.1 No Section 338 Election................................51
3.2 Tax Return Filing......................................52
3.3 Further Assurances.....................................52
3.4 Access to Records......................................52
3.5 Preservation of Records................................54
3.6 Confidentiality........................................54
3.7 Efforts; Consents......................................55
3.8 Return of Information and Confidentiality..............55
3.9 Ordinary Course of Business............................56
3.10 Insurance Proceeds, Litigation Rights..................56
3.11 Benefit Plans..........................................57
3.12 Benefits Disclosure....................................57
3.13 Employee Arrangements..................................58
3.14 Preservation of Business...............................58
3.15 Litigation.............................................59
3.16 Agreements.............................................59
3.17 Continued Effectiveness of Representations and
Warranties.............................................59
3.18 Satisfaction of Conditions Precedent...................60
3.19 Exclusivity............................................60
3.20 Certain Covenants of the Purchaser.....................61
ARTICLE IV
Conditions to Closing...........................................64
4.1 Conditions to Obligations of the Sellers...............64
(A) Regulatory Authorizations........................64
(B) Representations and Warranties; Covenants........64
(C) Certificate......................................64
(D) Opinion of Counsel to the Purchasers.............65
4.2 Conditions to Obligation of the Purchaser..............65
(A) Regulatory and other Authorizations..............65
(B) Representations and Warranties; Covenants........65
(C) Governmental Permits and Approvals...............66
(D) Third Party Consents.............................66
(E) Opinion of Counsel to the Sellers and the
Company..........................................66
(F) Delivery of Stock Certificates...................67
(G) Working Capital..................................67
(H) Cash.............................................67
(I) Vector Data Systems (UK) Limited.................67
(J) Digital Healthcare Solutions, L.L.C..............67
(K) Non-Competition..................................68
(L) Certificate......................................68
(ii)
<PAGE>
Page
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ARTICLE V
Fees Relating to this Transaction...............................69
ARTICLE VI
Termination.....................................................70
6.1 Termination............................................70
6.2 Effect of Termination; Expenses........................71
ARTICLE VII
Indemnification.................................................72
7.1 Indemnification by the Sellers.........................72
7.2 Indemnification by the Purchaser.......................73
7.3 ERISA and Contract Supplemental Indemnification by
Each Seller............................................73
7.4 Survival of Representations and Warranties of the
Sellers................................................75
7.5 Certain Limitations on Indemnification Obligations.....76
7.6 Defense of Claims......................................78
7.7 Non-Third Party Claims.................................80
7.8 Set-off Rights.........................................81
ARTICLE VIII
Miscellaneous...................................................82
8.1 Certain Definitions....................................82
8.2 Sellers' Representative................................84
8.3 Expenses...............................................85
8.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies...............................86
8.5 Public Disclosure......................................87
8.6 Mediation..............................................87
8.7 Governing Law. .......................................88
8.8 Notices................................................89
8.9 Section Headings.......................................90
8.10 Counterparts...........................................90
8.11 Assignments............................................90
8.12 Entire Agreement, Enforceability and Miscellaneous.....91
8.13 Construction of Agreement..............................91
Schedules
Schedule 1.2 Shareholders of the Company
Schedule 2.1(A) Organization and Qualification of the Company
Schedule 2.1(C) Shareholders of Subsidiaries
Schedule 2.1(F) Absence of Certain Changes or Events
(iii)
<PAGE>
Schedule 2.1(G) Litigation and Liabilities
Schedule 2.1(I) Compliance with Laws
Schedule 2.1(J) Intangible Property
Schedule 2.1(K) Non-Contravention
Schedule 2.1(L) Consents and Approvals
Schedule 2.1(M) Employee Benefit Plans; ERISA
Schedule 2.1(O) True Copies of Documents
Schedule 2.1(P) Agreements
Schedule 2.1(Q) Groups
Schedule 2.1(R) Additional Representation
Schedule 2.1(T) Potential Conflicts of Interest
Schedule 2.1(U) Liabilities
Schedule 2.1(V) Real Property
Exhibits
Exhibit I Form of Escrow Agreement
Exhibit II Form of Opinion of Counsel to the Purchaser
Exhibit III Form of Opinion of Counsel to the Sellers and the Company
Exhibit IV Form of Non-Compete and Non-Disclosure Agreement
(iv)
<PAGE>
STOCK PURCHASE AGREEMENT (this "Agreement"), dated August 29, 1997,
by and among Anteon Corporation, a Virginia corporation (the "PURCHASER"),
Vector Data Systems, Inc., a Virginia corporation (the "COMPANY"), each of the
individuals designated on the signature pages hereof as a Seller (each a
"SELLER" and collectively, the "SELLERS") and Joseph J. Cane, an individual who
shall serve as the representative of the Sellers (the "Sellers'
Representative").
W I T N E S S E T H :
WHEREAS, the Sellers are the beneficial and record owners of all of
the issued and outstanding shares of common stock, no par value (the "SHARES"),
of the Company;
WHEREAS, the Sellers desire to sell and transfer to the Purchaser,
and the Purchaser desires to purchase from the Sellers, the Shares, all as more
specifically provided herein;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Shares
1.1 Purchase and Sale of Shares. The Purchaser agrees to purchase
from the Sellers, and the Sellers agree to sell to the Purchaser, the Shares,
for an aggregate consideration of (a) Nineteen Million Dollars ($19,000,000),
subject to
<PAGE>
2
adjustment as set forth in Section 1.5. (the "CLOSING PAYMENT"), plus (b) any
sum or sums due hereunder pursuant to Section 1.6, subject to any right of
set-off the Purchaser may have pursuant to Section 7.8 (the "Contingent
Consideration") (the Closing Payment and the Contingent Consideration being
hereinafter referred to collectively as the "Purchase Price").
1.2 Payment of Purchase Price. The Purchase Price shall be paid by
the Purchaser as follows:
(a) Subject to the terms of Section 1.5, at the Closing (as
defined in Section 1.4), the Purchaser shall pay to the Sellers' Representative
(as defined in Section 8.2), cash by wire transfer of federal funds to a bank
and for an account to be designated by the Sellers' Representative in the amount
of the Closing Payment ($350,000 of which will be paid pursuant to the terms of
the Escrow Agreement (as defined in Section 1.7)), such amount to be allocated
by the Sellers' Representative amongst the Sellers in accordance with their
respective interests in the Shares, as set forth on Schedule 1.2.
(b) The Contingent Consideration to be paid pursuant to this
Agreement, if any, shall be paid by Purchaser in accordance with the terms of
Section 1.6, subject to any set-off right the Purchaser may have pursuant to
Section 7.8, such amount to be allocated by the Sellers' Representative amongst
the Sellers in accordance with their respective interests in the Shares, as set
forth on Schedule 1.2.
1.3 Delivery of Shares. At the Closing, each Seller shall deliver,
or cause to be delivered, to the Purchaser stock certificates representing the
number of
<PAGE>
3
Shares set forth opposite such Seller's name on Schedule 1.2, duly endorsed in
blank or accompanied by stock powers duly executed in blank, in proper form for
transfer.
1.4 Closing; Closing Date. The closing of the sale and purchase of
the Shares (the "CLOSING") shall take place at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, 1615 L Street, NW, Washington, D.C. 20036-5694 at
10:00 A.M. local time on the Business Day next following the satisfaction (or
appropriate waiver) of the conditions set forth in Article IV which the parties
shall endeavor to cause to occur not later than the fifth Business Day following
the date of the parties' execution of this Agreement, or at such other place or
such other time or date as the Purchaser and the Sellers' Representative may
mutually agree in writing. The time and date upon which the Closing occurs is
herein called the "CLOSING DATE."
1.5 Purchase Price Adjustment.
(a) Estimated Statement of Cash. The Sellers shall cause a
statement of Cash (as defined in Section 8.1) (the "STATEMENT OF CASH") for the
Company as of the Closing Date to be prepared and delivered to the Purchaser at
Closing, which shall be the basis for determining the adjustment, if any, to the
Closing Payment, as described in this Section 1.5. The Statement of Cash shall
be prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis. If the amount of Cash as set forth on the
Statement of Cash (the "CASH AMOUNT") is less than $2,000,000 and the Purchaser
elects, in its sole discretion, to waive the condition set forth in Section
4.2(H), the Closing Payment shall be reduced by the amount by which the Cash
Amount is less than $2,000,000; PROVIDED, HOWEVER, if the Seller reasonably
demonstrates to the
<PAGE>
4
Purchaser that it had Working Capital (as defined in Section 8.1) as of July 31,
1997 of not less than $3,000,000, then the amount set forth in Section 4.2(H)
will be deemed to be $1,850,000 and not $2,000,000 and the Closing Payment shall
be reduced by the amount by which the Cash Amount at Closing is less than
$1,850,000.
(b) Vector Data Systems (UK) Limited. If at the Closing the
Sellers fail to provide evidence satisfactory to the Purchaser demonstrating
that the Company owns at least 80% of the issued and outstanding capital stock
of Vector Data Systems (UK) Limited ("VDS (UK)"), and if the Purchaser elects,
in its sole discretion, to waive the condition contained in Section 4.2(I), then
the Closing Payment shall be reduced by $125,000. An opinion of leading United
Kingdom solicitors to the effect that at least 80% of the issued and outstanding
capital stock of VDS (UK) is owned by the Company shall be deemed satisfactory
evidence.
1.6 Determination and Payment of Contingent Consideration.
(a) For each of fiscal years 1998 (October 1, 1997 - September
30, 1998) and 1999 (October 1, 1998 - September 30, 1999), the Purchaser shall,
at its sole cost and expense, cause KPMG Peat Marwick, LLP or another nationally
recognized firm of independent public accountants (the "ACCOUNTANT") to deliver
to the Purchaser and the Sellers' Representative a statement of Revenue (as
defined in Section 8.1) and Gross Profit (as defined in Section 8.1) for the
Company and VDS (UK) on a stand-alone basis in accordance with GAAP (in the case
of VDS (UK), U.K. GAAP) applied on a consistent basis by not later than (i)
January 30, 1999, in the case of fiscal year 1998 (the "1998 PERFORMANCE
STATEMENT"), and (ii) January 30, 2000, in the case of fiscal year 1999 (the
"1999
<PAGE>
5
PERFORMANCE STATEMENT"). Concurrent with the delivery of the relevant
Performance Statement, the Accountant shall certify to the Purchaser (and the
Purchaser shall use its reasonable efforts to cause the Accountant to certify to
the Sellers' Representative, if the Sellers' Representative executes and
delivers on behalf of himself and the Sellers the Accountant's customary
agreement for indemnification and release of liability (an "INDEMNIFICATION
AGREEMENT") in a form acceptable to the Accountant) that the relevant
Performance Statement was calculated in accordance with the provisions of this
Agreement.
(b) The Sellers' Representative shall have reasonable access
to all personnel of the Company and each Subsidiary (as defined in Section
2.1(A)) and shall have the right to review all books, accounting records and
other materials of the Company and the Subsidiaries relevant to the preparation
of the 1998 and 1999 Performance Statements that the Sellers' Representative
reasonably requests. In addition, the Purchaser shall use its reasonable efforts
to cause the Sellers' Representative, after execution and delivery of the
Indemnification Agreement with respect to the applicable Performance Statement,
to have reasonable access to all personnel of the Accountant involved in the
preparation of such Performance Statements and to be permitted to review the
Accountant's audit work papers with respect thereto. In the event that the
Purchaser and/or the Sellers' Representative disagrees in any respect with
either the 1998 or 1999 Performance Statement, the Sellers' Representative
and/or the Purchaser shall deliver to the other, within forty-five (45) days
after delivery by the Accountant of such Performance Statement, a written notice
(the "SECTION 1.6 OBJECTION NOTICE") specifying the matters to which it
<PAGE>
6
objects and the basis for such disagreement (together with any authority or
documentation supporting its position). Any Section 1.6 Objection Notice may
include disagreements with respect to any adjustments in the calculation of
Revenue and Gross Profit made pursuant to Section 3.20(A) of this Agreement,
such disagreement to be resolved in accordance with the methodology provided in
this Section 1.6 of this Agreement. The Purchaser and the Sellers'
Representative shall thereupon endeavor in good faith to resolve any
disagreement or dispute arising out of the Section 1.6 Objection Notice. In the
event such parties do so, such parties shall promptly execute a document which
sets forth the resolution of such disagreement or dispute.
(c) In the event that the Purchaser or the Sellers'
Representative timely receives a Section 1.6 Objection Notice and the Sellers'
Representative and the Purchaser are unable to resolve the disagreement
specified in the Section 1.6 Objection Notice within ten (10) Business Days
after receipt by the Purchaser thereof, the disagreement shall be submitted to a
nationally recognized firm of independent public accountants (who shall not be
the same accounting firm that certified the relevant Performance Statement)
chosen by the Purchaser and the Sellers' Representative (the "SECTION 1.6
ACCOUNTANT"); PROVIDED that if the Purchaser and the Sellers' Representative are
unable to agree on such accountants within fourteen (14) days following the end
of such ten (10) Business Day period, then the Purchaser and the Sellers'
Representative will within seven (7) days following the end of such fourteen
(14) day period thereof jointly request that the president of the American
Arbitration Association select an accountant, such accountant to be associated
with a
<PAGE>
7
nationally recognized accounting firm other than the Accountant (such
AAA-appointed accountant to be deemed the Section 1.6 Accountant for purposes of
this Agreement). Upon delivery to the Purchaser and the Sellers' Representative
of a statement in writing setting forth the conclusion of the Section 1.6
Accountant's opinion of the disputed item or items and the effect of such
conclusion on the relevant Performance Statement, such determination shall be
final and binding upon the Purchaser and the Sellers without any further right
of appeal.
(d) The Section 1.6 Accountant shall have reasonable access to
all personnel of the Company and the Subsidiaries and shall have the right to
review all books, accounting records and other materials pertaining to the
relevant Performance Statement that the Section 1.6 Accountant shall request.
The Section 1.6 Accountant shall render its determination on the disagreement
submitted to it within sixty (60) days of submission of the disagreement by the
Purchaser and the Sellers' Representative. The respective Performance Statement
will be deemed to be final (the "FINAL 1998 PERFORMANCE STATEMENT," in the case
of fiscal year 1998; and the "FINAL 1999 PERFORMANCE STATEMENT" in the case of
fiscal year 1999) on and as of the first to occur of the following: (i) the
expiration of the forty-five (45) day period referred to in Section 1.6(b)
without the delivery of a Section 1.6 Objection Notice respecting the respective
Performance Statement; (ii) the execution of a document, pursuant to Section
1.6(b), setting forth the resolution of any dispute set forth in any Section 1.6
Objection Notice respecting such Performance Statement by the Sellers'
Representative and the Purchaser; and (iii) the date that the Section 1.6
Accountant delivers the relevant determination to the Purchaser pursuant to
Section 1.6(c); it
<PAGE>
8
being understood that the Final 1998 Performance Statement and the Final 1999
Performance Statement shall mean a Performance Statement as modified by any such
resolution or determination.
(e) Contingent Consideration A.
(i) If the amount of Revenue set forth on the Final 1998
Performance Statement is at least $49.4 million, then by not later than the
fifth (5th) Business Day after the 1998 Performance Statement is deemed to be
the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers'
Representative, cash by wire transfer of Federal funds to a bank and for an
account to be designated by the Sellers' Representative, in the amount of
$250,000. If the amount of Gross Profit set forth on the Final 1998 Performance
Statement is at least $8.9 million, then by not later than the fifth (5th)
Business Day after the 1998 Performance Statement is deemed to be the Final 1998
Performance Statement, the Purchaser shall pay to the Sellers' Representative,
on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and
for an account to be designated by the Sellers' Representative, in the amount of
$500,000.
(ii) If the amount of Revenue set forth on the Final 1999
Performance Statement is at least $52.9 million, then by not later than the
fifth (5th) Business Day after the 1999 Performance Statement is deemed to be
the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers'
Representative , on behalf of the Sellers, cash by wire transfer of Federal
funds to a bank and for an account to be designated by the Sellers'
Representative, in the amount of $250,000. If the amount of Gross Profit set
forth on Final 1999 Performance Statement is at
<PAGE>
9
least $10.1 million, then by not later than the fifth (5th) Business Day after
the 1999 Performance Statement is deemed to be the Final 1999 Performance
Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of
the Sellers, cash by wire transfer of Federal funds to a bank and for an account
to be designated by the Sellers' Representative, in the amount of $500,000.
(f) Contingent Consideration B. In addition to any amounts
payable by the Purchaser to the Sellers pursuant to 1.6(e):
(i) If the amount of Revenue set forth on the Final 1998
Performance Statement is at least $59.2 million, then by not later than the
fifth (5th) Business Day after the 1998 Performance Statement is deemed to be
the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers'
Representative, on behalf of the Sellers, cash by wire transfer of Federal funds
to a bank and for an account to be designated by the Sellers' Representative, in
the amount of $500,000. If the amount of Gross Profit set forth on the Final
1998 Performance Statement is at least $10.6 million, then by not later than the
fifth (5th) Business Day after the 1998 Performance Statement is deemed to be
the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers'
Representative, on behalf of the Sellers, cash by wire transfer of Federal funds
to a bank and for an account to be designated by the Sellers' Representative, in
the amount of $1 million.
(ii) If the amount of Revenue set forth on the Final 1999
Performance Statement is at least $63.5 million, then by not later than the
fifth (5th) Business Day after the 1999 Performance Statement is deemed to be
the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers'
Representative, on
<PAGE>
10
behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for
an account to be designated by the Sellers' Representative, in the amount of
$500,000. If the amount of Gross Profit set forth on the Final 1999 Performance
Statement is at least $12.2 million, then by not later than the fifth (5th)
Business Day after the 1999 Performance Statement is deemed to be the Final 1999
Performance Statement, the Purchaser shall pay to the Sellers' Representative,
on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and
for an account to be designated by the Sellers' Representative, in the amount of
$1 million.
(g) Contingent Consideration C. In addition to any amounts
payable by the Purchaser to the Sellers' Representative pursuant to Sections
1.6(e) and/or (f):
(i) If the amount of Revenue set forth on the Final 1998
Performance Statement is at least $65.8 million, then by not later than the
fifth (5th) Business Day after the 1998 Performance Statement is deemed to be
the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers'
Representative , cash by wire transfer of Federal funds to a bank and for an
account to be designated by the Sellers' Representative, in the amount of
$250,000. If the amount of Gross Profit set forth on the Final 1998 Performance
Statement is at least $11.8 million, then by not later than the fifth (5th)
Business Day after the 1998 Performance Statement is deemed to be the Final 1998
Performance Statement, the Purchaser shall pay to the Sellers' Representative,
on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and
for an account to be designated by the Sellers' Representative, in the amount of
$500,000.
<PAGE>
11
(ii) If the amount of Revenue set forth on the Final 1999
Performance Statement is at least $70.5 million, then by not later than the
fifth (5th) Business Day after the 1999 Performance Statement is deemed to be
the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers'
Representative, on behalf of the Sellers, cash by wire transfer of Federal funds
to a bank and for an account to be designated by the Sellers' Representative, in
the amount of $250,000. If the amount of Gross Profit set forth on the Final
1999 Performance Statement is at least $13.5 million, then by not later than the
fifth (5th) Business Day after the 1999 Performance Statement is deemed to be
the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers'
Representative, on behalf of the Sellers, cash by wire transfer of Federal funds
to a bank and for an account to be designated by the Sellers' Representative, in
the amount of $500,000.
(h) Fees and expenses, if any, of the Section 1.6 Accountant
with respect to each Performance Statement (a) shall be paid by the Sellers if,
notwithstanding any modifications made to the relevant Performance Statement by
the Section 1.6 Accountant, the Sellers are not entitled to be paid any greater
amount under Section 1.6 than they would have received if the disagreement with
respect to such Performance Statement had not been submitted to the Section 1.6
Accountant and (b) shall be paid by the Purchaser if, as a result of
modifications made to the relevant Performance Statement by the Section 1.6
Accountant, the Sellers are entitled to be paid a greater amount under Section
1.6 than they would have received if the disagreement with respect to such
Performance Statement had not been submitted to the Section 1.6 Accountant.
<PAGE>
12
(i) All sums payable to the Sellers' Representative pursuant
to this Section 1.6, if any, shall be paid in cash by wire transfer of Federal
funds to a bank and for an account designated by the Sellers' Representative
within five Business Days following the date on which the Final 1998 Performance
Statement or Final 1999 Performance Statement, as the case may be, is deemed
final pursuant to the terms hereof and shall bear interest from and after the
date due (including under the next succeeding sentence) until the date paid in
full at a rate which is equal to the prime rate, as announced from time to time
by Mellon Bank, N.A., on the basis of a 366-day year and actual days elapsed.
Notwithstanding anything to the contrary set forth in this Section 1.6, any
amount of Contingent Consideration that would be payable hereunder based upon
the amount of Revenue and/or Gross Profit set forth in the relevant Performance
Statement as delivered by the Accountant that are not subject to any objection
set forth in a Section 1.6 Objection Notice shall be paid by the Purchaser to
the Sellers' Representative within five (5) Business Days after the expiration
of the forty-five (45) day period referred to in Section 1.6(b) in cash by wire
transfer of Federal funds to a bank and for an account designated by the
Sellers' Representative, and the balance of any amount that becomes payable by
reason of the Performance Statement becoming final in accordance with Section
1.6(d) shall be paid in accordance with the immediately preceding sentence.
1.7 Escrow. Upon execution of this Agreement, the Purchaser shall
pay to Norwest Bank Minnesota, National Association, a national association
organized and existing under the laws of the United States of America (the
"ESCROW AGENT"), cash by wire transfer of Federal funds to a bank and for an
account to be
<PAGE>
13
designated by the Escrow Agent, in the amount of $350,000, such amount to be
held in an escrow account in accordance with the terms of an escrow agreement,
substantially in the form of Exhibit I, among the Purchaser, the Escrow Agent,
the Sellers' Representative and each of the Sellers (the "ESCROW AGREEMENT").
1.8 Arbitration. The resolution of disputed items arising under
Sections 1.5 or 1.6 shall be determined by arbitration in the Washington, D.C.
metropolitan area (including Northern Virginia), in accordance with the
applicable rules of the American Arbitration Association by a single arbitrator.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing provisions of this
Section 1.8, if the parties select the Section 1.6 Accountant then such
resolution shall not be conducted under the auspices of the American Arbitration
Association unless the Sellers and the Purchasers otherwise agree in writing.
ARTICLE II
Representations and Warranties
2.1 Representations and Warranties of the Sellers as to the COMPANY.
Each of the Sellers jointly and severally (except as to the matters set forth in
Sections 2.1(B)(i), 2.1(D), 2.1(K)(i) and 2(T), as to which each of the Sellers
makes such representations and warranties severally but not jointly) represents
and warrants, and the Company represents and warrants (except as to the matters
set forth in Sections 2.1(B)(i), 2.1(B)(iii), 2.1(D) and 2.1(K)(i), as to which
no representation or warranty, is made by the Company), to the Purchaser that:
<PAGE>
14
(A) Organization and Qualification of the Company. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own, lease and operate its properties and assets and to carry
on its business as now being or heretofore conducted. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its property or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not have a Company Material Adverse Effect (as defined
below). "COMPANY MATERIAL ADVERSE EFFECT", as used in this Agreement, shall mean
any event, change or effect that is or could reasonably be expected to be
materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations, results of operations, or prospects
of the Company and its Subsidiaries taken as a whole. The copies of the
Certificates of Incorporation and By-Laws of the Company and each of the
Subsidiaries previously delivered to the Purchaser or its counsel, in each case
as amended, are complete and correct. Schedule 2.1(A) sets forth the name and
jurisdiction of organization of each corporation or other entity in which the
Company directly or indirectly owns or has the power to vote shares of the
capital stock or other ownership interests (each, a "Subsidiary," and
collectively, "Subsidiaries"). The Company does not directly or indirectly own
any interest in any other person or entity. Each of the Subsidiaries is an
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization and has all requisite corporate power and
authority to own, lease and operate its properties and assets and
<PAGE>
15
to carry on its business as now being or heretofore conducted. The respective
minute books, or comparable records, of the Company and each of the Subsidiaries
are accurate in all material respects. The stock books of the Company and each
of the Subsidiaries are true and complete.
(B) Authority to Execute and Perform Agreement.
(i) Each Seller has all requisite power and all
authority and approvals required to enter into, execute and deliver this
Agreement and each and every agreement and instrument contemplated hereby to
which it is or will be a party (including the Escrow Agreement and, if
applicable, a Non-Compete and Non-Disclosure Agreement) and to perform fully
such Seller's obligations hereunder and thereunder. This Agreement has been duly
executed and delivered by each Seller, and on the Closing Date, each and every
agreement and instrument contemplated hereby to which such Seller is a party on
the Closing Date (including the Escrow Agreement and, if applicable, a
Non-Compete and Non-Disclosure Agreement) will be duly executed and delivered by
such Seller. Assuming due execution and delivery hereof and thereof by the
Purchaser, this Agreement and each such other agreement and instrument will be
valid and binding obligations of such Seller, enforceable against such Seller in
accordance with their respective terms, except that such enforceability may be
subject to (i) bankruptcy, insolvency, reorganization or other similar laws
affecting or relating to enforcement of creditors' rights generally, and (ii)
general equitable principles.
(ii) The Company has full right and power and all
authority and approvals required to enter into, execute and deliver this
Agreement and
<PAGE>
16
each and every agreement and instrument contemplated hereby to which it is or
will be a party and to perform fully its obligations hereunder and thereunder.
This Agreement has been duly executed and delivered by the Company, and on the
Closing Date, each and every agreement and instrument contemplated hereby to
which the Company is a party on the Closing Date will be duly executed and
delivered by the Company. Assuming due execution and delivery hereof and thereof
by the Purchaser, this Agreement and each such other agreement and instrument
will be valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization or
other similar laws affecting or relating to enforcement of creditors' rights
generally, and (ii) general equitable principles.
(iii) The Sellers' Representative has all requisite
power and authority and approvals required to enter into, execute and deliver
this Agreement and each and every agreement and instrument contemplated hereby
to which it is or will be a party and to perform fully its obligations hereunder
and thereunder. This Agreement has been duly executed and delivered by the
Sellers' Representative, and on the Closing Date, each and every agreement and
instrument contemplated hereby to which the Sellers' Representative is a party
on the Closing Date will be duly executed and delivered by the Sellers'
Representative. Assuming due execution and delivery hereof and thereof by the
Purchaser, this Agreement and each such other agreement and instrument will be
valid and binding obligations of the Sellers' Representative enforceable against
the Sellers' Representative, in accordance with their respective terms, except
that such enforceability may be subject to (i)
<PAGE>
17
bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally, and (ii) general
equitable principles.
(C) Capital Stock. The authorized capital stock of the Company
consists of 1,000,000 shares of common stock, no par value, of which 997,000
shares are duly authorized and validly issued and outstanding, fully paid and
nonassessable, and are owned beneficially and of record by the Sellers, in the
respective amounts set forth on Schedule 1.2, free and clear of any pledges,
liens, charges, encumbrances, voting or transfer restrictions, security
interests, restrictions and claims of any kind ("LIENS"). There are 3,000 shares
held in the treasury of the Company. The Company has no other authorized, issued
or outstanding class of capital stock. All issued and outstanding capital stock
of each of the Subsidiaries that is owned by the Company, is owned by the
Company in the amounts set forth on Schedule 2.1(C), free and clear of any
Liens. There are no existing options, rights, subscriptions, warrants,
unsatisfied preemptive rights, calls or commitments of any character relating to
(i) the authorized and unissued capital stock of the Company or any of the
Subsidiaries, or (ii) any securities or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for or acquire
from the Company or any of the Subsidiaries any shares of capital stock of the
Company or any of the Subsidiaries, and no such convertible or exchangeable
securities or obligations are outstanding. The Sellers are the lawful owners,
beneficially and of record, of the Shares, free and clear of all Liens. Except
for their status as officers, directors and/or shareholders of the Company
and/or Vector Microwave Research Corporation, the Sellers are not, and have not
been, affiliates of each other as the
<PAGE>
18
term "affiliates" is defined in Section 9.403 of the Federal Acquisition
Regulation (48 C.F.R. ss. 9.403).
(D) Good Title to Shares. At the Closing, each Seller will
deliver to the Purchaser good title to the Shares held by such Seller, free and
clear of all Liens.
(E) Financial Statements. The consolidated balance sheets of
the Company and the Consolidated Subsidiaries as of September 30, 1995, and
September 30, 1996, and the related consolidated statements of income,
shareholders' equity and changes in financial position for the years then ended,
including the footnotes thereto, reviewed by Keller Bruner & Company, P.C.,
independent certified public accountants, which have been delivered to the
Purchaser, fairly present, in all material respects, the consolidated financial
position of the Company and the Subsidiaries as at such dates and the
consolidated results of operations and changes in financial position, as the
case may be, of the Company and the Subsidiaries for such respective periods, in
each case in accordance with GAAP (in the case of VDS (UK), U.K. GAAP)
consistently applied except as may have been indicated in the notes thereto for
the periods covered thereby. (The foregoing consolidated financial statements of
the Company and the Subsidiaries as of September 30, 1996, and for the year then
ended are sometimes herein called the "REVIEWED FINANCIALS." The foregoing
balance sheet included in the Reviewed Financials is sometimes herein called the
"BALANCE SHEET.") The unaudited balance sheet of the Company as of May 30, 1997,
and the related statement of income for the eight months then ended, including
the footnotes thereto, which have been delivered to the Purchaser, fairly
<PAGE>
19
present, in all material respects, the financial position of the Company as of
such dates and the results of operations of the Company for the eight months
then ended, in each case in conformity with GAAP, in all material respects,
applied on a basis consistent with that of the Reviewed Financials (subject to
the normal year-end audit adjustments). The unaudited balance sheet of VDS (UK)
as of April 30, 1997 (the "VDS (UK) BALANCE SHEET") and the related statement of
income for the seven months then ended, which have been delivered to the
Purchaser, fairly present, in all material respects, the financial position of
VDS (UK) as of such date and the results of operations of VDS (UK) for the seven
months then ended, in each case in conformity with U.K. GAAP applied on a basis
consistent with that of the Reviewed Financials (subject to the normal year-end
audit adjustments).
(F) Absence of Certain Changes or Events. Except as described
herein or in Schedule 2.1(F), from September 30, 1996, there has been no change
in the business, properties, assets, prospects, operations or condition
(financial or otherwise) of the Company or any of the Subsidiaries which has
resulted or will result in or which the Sellers, the Company or any Subsidiary
has reason to believe might be expected to result in a Company Material Adverse
Effect, and none of the Sellers, the Company or any of the Subsidiaries knows of
any such change that is threatened, nor has there been any damage, destruction
or loss affecting the assets, properties, business, prospects, operations or
condition (financial or otherwise) of the Company or any of the Subsidiaries,
whether or not covered by insurance which has resulted or will result in or
which the Sellers, the Company or any Subsidiary has reason to believe might be
expected to result in a Company Material Adverse Effect.
<PAGE>
20
Except as set forth on Schedule 2.1(F), from September 30, 1996, neither the
Company nor any of the Subsidiaries has: (i) purchased, agreed to purchase,
retired, redeemed or called for redemption any of its outstanding shares, issued
or sold or purchased any options, warrants, shares, bonds or other securities,
interests or rights to acquire any of its securities or interests, or declared
or paid any dividend or distribution on or authorized or effected any split up
or recapitalization of any such securities; (ii) made or contracted for any
capital expenditures in excess of $10,000 per item and $50,000 in the aggregate,
or made any other commitments or disbursement or incurred or paid any
liabilities or obligations, except in the usual and ordinary course of business;
(iii) sold, leased, abandoned, or otherwise transferred (or contracted to sell,
lease or otherwise transfer) any of its assets or properties, except in the
usual and ordinary course of business, or mortgaged, pledged or subjected to any
Lien or any of its assets; (iv) canceled any debts or claims or waived any
rights in excess of $10,000 in the aggregate; (v) transferred or granted any
right under any lease, license, agreement, or other valuable asset; (vi) merged
with or into or consolidated with any other person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to change in
any manner the rights of its outstanding capital stock or the character of its
business; (vii) entered into or amended any employment agreement, entered into
or amended any agreement with any labor union or association representing any
employee, adopted, entered into, or amended any employee benefit plan, program,
agreement or arrangement, or made any change in the actuarial methods or
assumptions used in funding any defined benefit pension plan, or made any change
in the assumptions or factors used in determining benefit
<PAGE>
21
equivalencies thereunder; (viii) except for short-term bank borrowings in the
ordinary course of business, incurred any indebtedness for borrowed money; (ix)
made any change in its accounting methods or practices or made any change in
depreciation or amortization policies or lives adopted by it; (x) made any wage
or salary increase or bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, directors, employees, consultants,
agents or other representatives, or any accrual for or commitment or agreement
to make or pay the same, other than those made in the ordinary course of
business consistent with past practice; (xi) made any loan or advance to any of
its shareholders, officers, directors, employees, consultants, agents or other
representatives (other than travel advances made in the ordinary course of
business), or made any other loan or advance otherwise than in the ordinary
course of business; (xii) made any payment or commitment to pay any severance or
termination pay to any of its officers, directors, employees, consultants,
agents or other representatives, other than payments made in the ordinary course
of business to persons other than its officers or directors; (xiii) except in
the ordinary course of business, entered into or amended any contract or other
agreement to which it is a party, or by or to which it or its assets or
properties are bound or subject, in each case, calling for an aggregate purchase
or sale price or payments of more than $10,000, or pursuant to which it agreed
to indemnify any party or to refrain from competing with any party; (xiv) except
in the ordinary course of business and in amounts less than $5,000 in each case,
incurred, guaranteed or assumed any debt, obligation or liability (whether
absolute or contingent and whether or not currently due and payable); (xv)
except for inventory or equipment acquired in the ordinary
<PAGE>
22
course of business, made any acquisition of all or any part of the assets,
properties, capital stock or business of any other person; (xvi) paid, directly
or indirectly, any of its material liabilities before the same became due in
accordance with its terms or otherwise than in the ordinary course of business;
(xvii) terminated or failed to renew, or received any written threat (that was
not subsequently withdrawn) to terminate or fail to renew, any contract or other
agreement that is or was material to the assets, properties, business,
prospects, operations or condition (financial or otherwise) of the Company or
any of the Subsidiaries; or (xviii) agreed, whether in writing or otherwise, to
take any action described in this Section 2.1(F).
(G) Litigation and Liabilities. Except as listed on Schedule
2.1(G) hereto, there are no actions, suits, demands, or claims or legal,
administrative or arbitral proceedings, hearings or investigations pending or,
to the knowledge of the Company, any of the Subsidiaries or any of the Sellers,
threatened against or involving the Company or any of the Subsidiaries or any of
their respective property or assets. Except as listed on Schedule 2.1(G) hereto,
there are no obligations or liabilities, whether or not accrued, contingent or
otherwise, or any facts or circumstances of which the Company, any Subsidiary,
or any Seller is aware including, without limitation, those relating to
environmental and occupational safety and health matters, that, alone or in the
aggregate, could result in claims against, obligations of or liabilities to the
Company or any of the Subsidiaries which are reasonably likely to have a Company
Material Adverse Effect. Except as set forth on Schedule 2.1(G), there are no
outstanding orders, judgments, injunctions, awards or
<PAGE>
23
decrees of any court, governmental or regulatory body or arbitration tribunal
against or involving the Company or any of the Subsidiaries.
(H) Title to Properties; Absence of Liens, etc. The Company
and each of the Subsidiaries has good and marketable title to all of its
properties and assets, free and clear of any Liens, except (i) for Liens for
Taxes (as defined herein) not yet due and payable, (ii) as reflected in the
Balance Sheet, or (iii) for such properties and assets as may have been sold
since the date hereof in the ordinary course of business. All of the Company's
and each Subsidiary's properties and assets are, in all material respects, in
good operating condition and repair, subject to ordinary wear and tear.
(I) Licenses and Registrations; Compliance with Laws, etc. The
Company and each of the Subsidiaries has all permits, authorizations, licenses,
orders, registrations and approvals of, and has made all required registrations
with, any government or political subdivision thereof, whether Federal, state,
local or foreign, or any agency or instrumentality of any such government or
political subdivision, or any insurance company or fire rating and any other
similar board or organization or other non-governmental regulating body (to the
extent that the rules, regulations or orders of such body have the force of law)
or any court or arbitrator (each a "GOVERNMENTAL BODY," and collectively,
"GOVERNMENTAL BODIES") which are material to or necessary for the Company and
each of the Subsidiaries to carry on their respective business as presently
conducted or material to the intended use of any properties of the Company or
any of the Subsidiaries (collectively, "PERMITS"). Such Permits are in full
force and effect; no violations are or have been recorded in respect
<PAGE>
24
of any Permit; and no proceeding is pending or, to the knowledge of the Company,
any of the Subsidiaries or any of the Sellers, threatened to revoke or limit any
Permit. The Company and each of the Subsidiaries is in compliance in all
material respects with the terms of such Permits. Except as listed on Schedule
2.1(I) hereto, the businesses of the Company and each Subsidiary are not being
conducted in conflict with, violation of or default under any law, rule, decree,
regulation, ordinance or order applicable to their businesses, properties,
assets and operations (including, without limitation, those relating to wages
and hours, occupational health and safety, record keeping, customs,
environmental matters, export control, hazardous waste disposal, pollution
control, possession of classified information or zoning), except for any
conflicts, violations or defaults which, individually or in the aggregate, would
not result in a Company Material Adverse Effect or materially impair the ability
of the Sellers, the Company and each Subsidiary to perform their respective
obligations under this Agreement and the Company has filed with the proper
authorities all material statements and reports required by all applicable laws,
rules, decrees, regulations, judgments, injunctions, awards, ordinances and
orders. The Company and each of the Subsidiaries has at all times complied with
the provisions of The Foreign Corrupt Practices Act of 1977, as amended. Neither
the Company nor any of the Subsidiaries has made any illegal payment to officers
or employees of any governmental or regulatory body, or made any payment to
customers for the sharing of fees or to customers or suppliers for rebating of
charges, or engaged in any other reciprocal practices, or made any illegal
payment or given any other illegal
<PAGE>
25
consideration to purchasing agents or other representatives of customers in
respect of the sales made or to be made by the Company or any of the
Subsidiaries.
(J) Intangible Property. The Company owns no patents or patent
applications. Schedule 2.1(J) sets forth a list of all trademarks, copyrights,
service marks, trade names and franchises, all applications for any of the
foregoing, and all permits, grants and licenses or other rights running to or
from the Company or any of the Subsidiaries relating to any of the foregoing
(collectively, "INTELLECTUAL PROPERTY RIGHTS"). Except as disclosed on Schedule
2.1(J), (i) to the knowledge of the Sellers, the Company and each Subsidiary,
the use and registration of such Intellectual Property Rights do not conflict
with the intellectual property rights of any other person, firm or corporation
and no other person's, firm's or corporation's operations conflict with the use
and registration of the Intellectual Property Rights; (ii) there are not now any
suits pending or, to the knowledge of any of the Sellers, the Company or any of
the Subsidiaries, threatened against or by the Company or any of the
Subsidiaries claiming a conflict by the Company or any of the Subsidiaries with
the Intellectual Property Rights; (iii) none of the Sellers, the Company or any
of the Subsidiaries has notice of any adversely held patent, invention,
copyright, trademark, service mark or trade name of any other person or notice
of any claim of any other person relating to any of the Intellectual Property
Rights listed on Schedule 2.1(J), and none of the Company, any of the
Subsidiaries or any of the Sellers knows of any valid basis for any such claim,
except to the extent that any such conflict, notice or basis therefor has not
and could not reasonably be expected to have a Company Material Adverse Effect;
and (iv) the Intellectual Property Rights are free and clear of
<PAGE>
26
all rights of others and all liens, claims, charges, mortgages, pledges,
security interests and other encumbrances of any nature whatsoever, except such
as would not have a Company Material Adverse Effect or interfere with the
Company's use thereof.
(K) Non-Contravention.
(i) The execution and delivery of this Agreement by each
Seller and the execution of each and every other agreement and instrument
contemplated hereby by or on behalf of, and the consummation of the transactions
contemplated hereby and thereby and the performance by such Seller of this
Agreement and each such other agreement and instrument in accordance with their
respective terms will not (a) violate any provision of the Certificate of
Incorporation or By-Laws (or comparable instruments) of the Company or any of
the Subsidiaries, (b) except as set forth on Schedule 2.1(K), violate, conflict
with or result in the breach of any provision of, or result in a material
modification of or otherwise entitle any party to terminate, or constitute
(whether after the filing of notice or lapse of time or both) a default (by way
of substitution, novation or otherwise) under, any contract, agreement,
indenture, note, bond, loan, instrument, lease, conditional sales contract,
mortgage, license, franchise, commitment or other binding arrangement
(collectively, the "CONTRACTS") to which the Company or any of the Subsidiaries
is a party or by or to which any of the Company's or any Subsidiary's assets or
properties may be bound or subject, (c) result in the creation or imposition of
any material Lien upon any of the property or assets of the Company or any of
the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) violate
any law, regulation, statute, injunction,
<PAGE>
27
order, arbitration award, judgment or decree applicable to, against, or binding
upon, the Company or any of the Subsidiaries or by which any of the Company's or
any Subsidiary's securities, business or property is bound, or (e) violate or
result in the revocation or suspension of any Permit.
(ii) The execution and delivery of this Agreement by the
Company and each and every other agreement and instrument contemplated hereby,
and the consummation of the transactions contemplated hereby and thereby and the
performance by the Company of this Agreement and each such other agreement and
instrument in accordance with their respective terms will not (a) violate any
provision of the Certificate of Incorporation or By-Laws (or comparable
instruments) of the Company or any of the Subsidiaries, (b) except as set forth
on Schedule 2.1(K), violate, conflict with or result in the breach of any
provision of, or result in a material modification of or otherwise entitle any
party to terminate, or constitute (whether after the filing of notice or lapse
of time or both) a default (by way of substitution, novation or otherwise)
under, any Contract to which the Company or any of the Subsidiaries is a party
or by or to which any of the Company's or any of the Subsidiaries' assets or
properties may be bound or subject, (c) result in the creation or imposition of
any material Lien upon any of the property or assets of the Company or any of
the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) violate
any law, regulation, statute, injunction, order, arbitration award, judgment or
decree applicable to, against, or binding upon, such Seller, the Company or any
of the Subsidiaries or by which any of such Seller's, the Company's or any
Subsidiary's
<PAGE>
28
securities, business or property is bound or (e) violate or result in the
revocation or suspension of any Permit.
(L) Consent and Approvals. Except as set forth on Schedule
2.1(L), none of the execution and delivery of this Agreement and each and every
other agreement and instrument contemplated hereby by the Company, the Sellers
and/or the Sellers' Representative, the consummation by the Company, the Sellers
and/or the Sellers' Representative of the transactions contemplated hereby or
thereby or compliance by the Company, any Seller and/or the Sellers'
Representative with any of the provisions hereof or thereof will require any
consent, approval or action of, or make any filing with or give notice to, any
Governmental Body.
(M) Employee Benefit Plans; ERISA. Set forth on Schedule
2.1(M) is a true and complete list of each deferred compensation, executive
compensation, incentive compensation, stock purchase or other stock-based
compensation plan, severance or termination pay, holiday, vacation or other
bonus plan or practice, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit sharing, pension, or
retirement plan, program, agreement, commitment or arrangement, and each other
employee benefit plan, program, agreement or arrangement, including, without
limitation, each "employee benefit plan" as such term is defined under Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to or required to be contributed to by the
Company or any of the Subsidiaries for the benefit of any employee or terminated
employee of the Company or any of the Subsidiaries, or with respect to which the
Company or any of the
<PAGE>
29
Subsidiaries has any liability, whether direct or indirect, actual or
contingent, whether formal or informal, and whether legally binding or not (the
"PLANS").
(i) Except as disclosed on Schedule 2.1(M), with
respect to each Plan, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations that have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the Reviewed Financials. The Company and each of the Subsidiaries is not and
has not in the past been a member of a "controlled group" for purposes of
Section 414(c) of ERISA, nor does the Company or any of the Subsidiaries have
any liability with respect to any collectively-bargained for plans subject to
the provisions of ERISA.
(ii) Except for the Group Life/Accidental Death and
Dismemberment/Medical and Dental Plan for which IRS Form 5500 (and other Plan
filings) need to be filed for Plan Year 1996, each Plan is in compliance with
all applicable laws, including, without limitation, ERISA and the Internal
Revenue Code of 1986, as amended (the "CODE"). Each Plan which is intended to be
"qualified" within the meaning of Section 401(a) of the Code (a) has been
determined by the Internal Revenue Service (the "IRS") to be so qualified (or is
based on a prototype plan which has received a favorable determination letter)
during the period from its adoption to the date of this Agreement and (b) its
related trust has been determined to be exempt from taxation under Code Section
501(a) or the Company or the relevant Subsidiary, as the case may be, has
requested an initial favorable IRS determination of qualification and/or
exemption, none of the Company nor any of the Subsidiaries
<PAGE>
30
or any of the Sellers knows of any fact which would adversely affect the
qualified status of such Plans or the exempt status of such trusts, and the
Company and each of the Subsidiaries has received a favorable IRS determination
as to the qualified status of each such Plan with respect to the Tax Reform Act
of 1986 and subsequent amendments to the Code. The preceding sentence does not
apply to the Deferred Compensation Plan or the Incentive Compensation Plan,
which are not intended to be and are not "qualified" plans.
(iii) With respect to each Plan which covers any
current or former officer, director, consultant or employee (or beneficiary
thereof) of the Company or any of the Subsidiaries, the Sellers have delivered
or made available, (or have caused the Company and each of the Subsidiaries
heretofore to have delivered or made available) to the Purchaser accurate and
complete copies, if applicable, of: (a) all Plan texts and agreements and
related trust agreements or annuity contracts, (b) all employee communications
(including all summary plan descriptions and material modifications thereto),
(c) the most recent annual report, including all schedules thereto, (d) the most
recent annual and periodic accounting of plan assets, (e) the most recent
determination letter received from the IRS, (f) the most recent actuarial
valuation, and (g) all communications with any Governmental Body.
(iv) With respect to each Plan: (i) such Plan has been
administered and enforced in accordance with its terms; (ii) no breach of
fiduciary duty has occurred; (iii) no dispute is pending, or to the knowledge of
any of the Sellers, the Company or any of the Subsidiaries, threatened; (iv) no
prohibited
<PAGE>
31
transaction, as defined in Section 406 of ERISA or Section 4975 of the Code, has
occurred, excluding transactions effected pursuant to a statutory or
administration exemption; (v) all contributions and premiums due through the
Closing Date have been made as required under ERISA or have been fully accrued
on the Company's and each of the Subsidiary's financial statements; and (vi) all
contributions and premiums accrued as of the Closing Date and due from Vector
Microwave Research Corporation ("VMRC") with respect to the Plans have been paid
in full as of the Closing Date.
(v) No Plan is a "defined benefit pension plan" (as
defined in Code Section 414(j)), a "multiemployer plan" (as defined in ERISA
Section 3(37)) or a "multiple employer plan" (as described in Code Section
413(c)). No Plan will become a multiple employer plan with respect to the
Company or any of the Subsidiaries immediately after the Closing Date.
(vi) There is no arrangement under any Plan with respect
to any employee that would result in the payment of any amount that by operation
of Code Section 280(G) or 162(m) would not be deductible by the Company or any
of the Subsidiaries.
(vii) With respect to each Plan which is a "welfare
plan" (as described in ERISA Section 3(1)): (i) no such plan provides medical or
death benefits with respect to current or former employees of the Company or any
of the Subsidiaries beyond their termination of employment (other than coverage
mandated by law), and (ii) there are no reserves, assets, surplus or prepaid
premiums under any such plan.
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32
(viii) Except as disclosed on Schedule 2.1(M), the
consummation of the transactions contemplated by this Agreement (excluding any
actions taken or which may be taken by Purchaser, the Company and/or any
Subsidiary after the Closing) will not (i) entitle any individual to severance
pay, unemployment compensation or other benefits or compensation, (ii)
accelerate the time of payment or vesting, or increase the amount of any
compensation due, or in respect of, any individual, (iii) result in or satisfy a
condition to the payment of compensation that would, in combination with any
other payment, result in an "excess parachute payment" within the meaning of
Code section 280G(b)(1); or (iv) constitute or involve a prohibited transaction
(as defined in ERISA Section 406 or Code Section 4975), constitute or involve a
breach of fiduciary responsibility within the meaning of ERISA section 502(l) or
otherwise violate Part 4 of Subtitle B of Title I of ERISA.
(N) Insurance Policies. True and complete copies of all
policies of fire, casualty, liability, product liability, burglary, fidelity,
worker's compensation, life, vehicular and other forms of insurance held by or
on behalf of the Company or the Subsidiaries have been made available to the
Purchaser or its representatives. All premiums due and payable for such
insurance have been duly paid, and such policies, or extensions, renewals or
replacements (on comparable terms to the extent available) thereof, in such
amounts will be outstanding and in full force and effect without interruption up
to the Closing Date. Such policies insure against all risks and liabilities to
an extent and in a manner customarily insured against by persons operating
comparable properties, assets or businesses in the same
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33
geographic locations. The Company has made available to the Purchaser a brief
description (specifying the insurer and the policy number or covering note
number with respect to binders, describing each pending claim thereunder of more
than $25,000, setting forth the aggregate amounts paid out under each such
policy through the date hereof and the aggregate limit, if any, of the insurer's
liability thereunder) of all policies or binders of fire, liability, worker's
compensation, vehicular and other insurance held by or on behalf of the Company
or any of the Subsidiaries. The Company has made available to the Purchaser with
respect to each policy a list and brief description of all claims in excess of
$25,000 (exclusive of claims under medical and dental policies) made by the
Company or any of the Subsidiaries during the Company's past two fiscal years
and the amount paid out under each policy with respect to such claims. None of
the Company, any of the Subsidiaries or any of the Sellers has any knowledge of
any facts or of the occurrence of any event that is reasonably likely to form
the basis for any material claim against the Company or any of the Subsidiaries
which will not be fully covered by such policies. Neither the Company nor any of
the Subsidiaries has received any written notice from any of its insurance
carriers that any insurance premiums will be materially increased in the future.
(O) Agreements. Schedule 2.1(O) hereto lists all of the
following contracts and other agreements to which the Company or any of the
Subsidiaries is a party or by or to which any of them or any of their assets or
properties are bound or subject: (i) contracts and other agreements with any
current or former officer, director, shareholder, employee, consultant, agent or
other
<PAGE>
34
representative or with an entity in which any of the foregoing is a contracting
person; (ii) contracts and other agreements with any labor union or association
representing any employee; (iii) contracts and other agreements, including
teaming agreements, that the Company has, or intends to have, with VMRC (or with
any Person affiliated or associated with VMRC) for the performance or pursuit of
business opportunities of mutual interest; (iv) contracts and other agreements
calling for an aggregate purchase or sale price or payments of more than $50,000
in any one case (or in the aggregate, in the case of any related series of
contracts and other agreements) for the purchase or sale of materials, supplies,
equipment, merchandise or services that contain an escalation, renegotiation or
redetermination clause; (v) contracts and other agreements calling for an
aggregate purchase or sale price or payments of more than $5,000 in any one case
(or in the aggregate, in the case of any related series of contracts and other
agreements) for the sale of any of its assets or properties other than in the
ordinary course of business or for the grant to any person of any preferential
rights to purchase any of its assets or properties; (vi) joint venture
agreements; (vii) contracts or other agreements under which the Company or any
of its Subsidiaries agrees to indemnify any party or to share tax liability of
any party; (vii) contracts and other agreements calling for an aggregate
purchase or sale price or payments of more than $50,000 in any one case (or in
the aggregate, in the case of any related series of contracts and other
agreements) that cannot be canceled by the Company or any of the Subsidiaries
with less than ninety days' notice without incurring liability, premium or
penalty; (viii) contracts and other agreements with customers or suppliers for
the sharing of fees, the rebating of charges or other similar arrangements; (ix)
contracts
<PAGE>
35
and other agreements containing obligations or liabilities of any kind to
holders of the Company's or any of the Subsidiaries' securities as such
(including, without limitation, an obligation to register any of such securities
under any federal or state securities laws); (x) contracts and other agreements
containing covenants of the Company or any of the Subsidiaries not to compete in
any line of business or with any person in any geographical area or covenants of
any other person not to compete with the Company or any of the Subsidiaries in
any line of business or in any geographical area; (xi) contracts and other
agreements relating to the acquisition by the Company or any of the Subsidiaries
of any operating business or the capital stock of any other person; (xii)
options for the purchase of any asset, tangible or intangible, requiring the
payment to any person of a commission or fee; (xiii) contracts and other
agreements for the payment of fees or other consideration to any officer or
director of the Company or any of the Subsidiaries or to any other entity in
which any of the foregoing has an interest; (xiv) contracts and other agreements
relating to the borrowing of money, and (xv) contracts with any of the Sellers
or any corporation in which any of such Sellers, individually or in the
aggregate, owns a controlling interest (other than the Company or any of the
Subsidiaries) or in which any Seller is a director, officer or employee thereof.
True and complete copies of all of the foregoing, in each case as amended to
date, have been delivered to, or, to the extent not requested to be delivered,
have been made available for inspection by, the Purchaser.
(P) Validity of Agreements. All contracts, leases, commitments
and other agreements described or listed in Schedule 2.1(O) constitute
<PAGE>
36
legal, valid and binding obligations of the Company and each of the
Subsidiaries, as the case may be, are in full force and effect, and are
enforceable in accordance with their respective terms, except as enforceability
may be limited by bankruptcy, insolvency, and other similar laws affecting the
enforcement of creditors' rights generally and general equitable principles. The
Company and each of the Subsidiaries has paid in full all amounts due thereunder
which are due and payable or accrued in accordance with GAAP (in the case of VDS
(UK), U.K. GAAP) all amounts due to others thereunder (and has properly
recognized revenues due from others thereunder) and has satisfied in full or
provided for all of its liabilities and obligations thereunder which are due and
payable, except amounts or liabilities disputed in good faith by the Company or
any of the Subsidiaries for which adequate reserves have been set aside and for
amounts related to federal and state income and franchise tax amounts. Neither
the Company nor any of the Subsidiaries is in default under any of such
contracts or agreements, nor does any condition exist that, with notice or lapse
of time or both, would constitute a default thereunder by the Company or any of
the Subsidiaries. To the knowledge of each of the Sellers, the Company and each
of the Subsidiaries, no other party to any such contract or other agreement is
in default thereunder, nor does any condition exist that with notice or lapse of
time or both would constitute a default thereunder by any other person or
entity. None of the Company, any of the Subsidiaries or any of the Sellers has
knowledge that any person intends to terminate (whether for cause or
convenience) or default under any contract or other agreement listed on Schedule
2.1(O) before its stated term, if any. Except as set forth on Schedule 2.1(P),
none of the Sellers, the Company or any of the
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37
Subsidiaries has any knowledge of a claim, actual or pending, by any
Governmental Body under any contract or agreement set forth on Schedule 2.1(O).
Except as separately identified on Schedule 2.1(P), no approval or consent of
any person is needed in order that the contracts and other agreements set forth
on Schedule 2.1(O) or on any other Schedule continue in full force and effect
following the consummation of the transactions contemplated by this Agreement.
No audit or review of any government contract or agreement will result in the
disallowance of, or claim for, any amount paid or payable to the Company or any
of the Subsidiaries under such con tract or agreement, whether as a result of
excess payments, excess profit recapture or otherwise.
(Q) Taxes.
(i) All United States federal income Tax Returns (as
defined in Section 8.1) of or with respect to the Company and the Subsidiaries,
required by law to be filed on or before the Closing date have been duly filed.
All such Tax Returns are accurate and complete in all material respects.
(ii) All other Tax Returns of or with respect to the
Company and the Subsidiaries required to be filed on or before the Closing Date
pursuant to applicable federal, foreign, state, local or other law have been
filed. All such Tax Returns are true and complete in all material respects. The
Company and the Subsidiaries have paid or withheld (or caused to be paid or
withheld) all Taxes shown on such Tax Returns as due and payable and all other
Taxes due or claimed to be due, whether by proposed assessment or otherwise, by
any taxing authority have been timely paid, except for such Taxes, if any, as
are being contested in good faith
<PAGE>
38
and as to which adequate reserves have been provided in accordance with GAAP (in
the case of VDS (UK), U.K. GAAP).
(iii) The charges, accruals and reserves on the books of
the Company and VDS (UK) in respect of any liability for Taxes (x) based on or
measured by net income for any years not finally determined, (y) with respect to
which the applicable statute of limitations has not expired or (z) that has been
previously deferred, are adequate to satisfy any assessment for such Taxes for
any such years. Neither the Company nor VDS (UK) has any liability for Taxes of
any person or entity other than the Company and/or VDS (UK).
(iv) With respect to any period for which Tax Returns
have not yet been filed, or with respect to which Taxes are not yet due or
owing, the Company and VDS (UK) have made sufficient current accruals,
provisions and reserves for such Taxes in accordance with GAAP (in the case of
VDS (UK), U.K. GAAP).
(v) The Company and VDS (UK) have made all required
estimated Tax payments sufficient to avoid any underpayment penalties. The Tax
Returns of the Company and VDS (UK) are not currently under audit or examination
by the IRS or Inland Revenue.
(vi) Except as set forth on Schedule 2.1(Q), neither the
Company nor VDS (UK) is a member of any affiliated, consolidated, combined or
unitary group as defined in Section 1504 of the Code, and the Treasury
regulations promulgated thereunder.
<PAGE>
39
(vii) There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitations applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to the Company or VDS (UK) for any taxable period.
(viii) Neither the Company nor any of the Subsidiaries
(nor their predecessors) will have any liability on or after the Closing Date
under any tax sharing agreement to which it has been a party on or before the
Closing Date, and all such tax sharing agreements shall terminate and be of no
further force and effect as of the Closing Date.
(ix) No closing agreement pursuant to Section 7121 of
the Code (or any predecessor provision) or any similar provision of any state,
local or foreign law that could affect the Taxes of the Company or VDS (UK), or
the taxable income of Digital Healthcare Solutions, L.L.C. ("DIGITAL") for
periods ending after the Closing Date has been entered into by or with respect
to the Company or any of the Subsidiaries.
(x) Except as set forth in Schedule 2.1(Q), no audit or
other proceeding by any court, governmental or regulatory authority or similar
authority is pending, and none of the Company or any of the Subsidiaries has
received any notification that such an audit or proceeding may be commenced,
with respect to any Taxes due from the Company or any of the Subsidiaries.
(xi) None of the Company or any of the Subsidiaries has
agreed to or is required to make any adjustment with respect to taxable periods
ending after the Closing Date pursuant to Section 481(a) of the Code (or any
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40
predecessor provision) by reason of any change in any accounting method of the
Company or any of the Subsidiaries, there is no application pending with any
taxing authority requesting permission for any such change in any accounting
method of the Company or any of the Subsidiaries and the IRS has not proposed
any such adjustment or change in accounting method.
(xii) Except as set forth in Section 2.1(Q), neither the
Company nor any of the Subsidiaries is, or has received any notice that it is,
in violation (or with notice will be in violation) of any applicable law
relating to the payment or withholding of Taxes. The Company and each of the
Subsidiaries has duly and timely withheld from employee salaries, wages, and
other compensation and paid over to the appropriate taxing authorities all
material amounts required to be so withheld and paid over for all periods under
all applicable laws.
(xiii) There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company or
any of the Subsidiaries by reason of Section 280G of the Code.
(xiv) VDS (UK) has properly operated the Pay As You Earn
("PAYE") and national insurance systems deducting tax as required by law from
all payments to or treated as made to or benefits provided for employees,
ex-employees or independent contractors of VDS (UK) (including any such payments
within Section 134 of the Income and Corporation Taxes Act (the "TA")) and duly
accounted to the Inland Revenue for tax so deducted and has complied with all
its reporting obligations to the Inland Revenue in connection with any such
payments
<PAGE>
41
made or benefits provided, and no PAYE audit in respect of VDS (UK) has been
made by the Inland Revenue nor has VDS (UK) been notified that any such audit
will be made.
(xv) No transaction or event has occurred in consequence
of which VDS (UK) is or may be held liable for any tax or deprived of relief or
allowances otherwise available to it or may otherwise be held liable for or to
indemnify any person in respect of any tax for which some other company or
person was primarily liable (whether by reason of any such other company being
or having been a member of the same group of companies or otherwise).
(xvi) (a) Within the period of three years ending with
the date hereof there has been no major change in the nature or conduct of any
trade or business carried on by VDS (UK) within the meaning of Section 245 or
768 of the TA.
(b) There has been no cessation or
discontinuance of any trade carried on by VDS (UK) nor has the scale of
activities in any trade carried on by VDS (UK) within three years hereof become
small or negligible.
(c) Prior to the execution of this Agreement, no
change of ownership of VDS (UK) has taken place such that either or both of
Sections 245 or 768 of the TA has or may be applied to deny relief in respect of
a loss or losses of VDS (UK) or surplus advance corporation tax.
(xvii) VDS (UK) has not since April 30, 1997, made any
payment or incurred any liability to make any payment which could be disallowed
<PAGE>
42
as a deduction in computing the taxable profits of VDS (UK) or as a charge to
VDS (UK)'s income.
(xviii) All transactions entered into by VDS (UK) have
been entered into on an arm's length basis and the consideration (if any)
charged, received or paid by VDS (UK) on all transactions entered into by it has
been equal to the consideration which might have been expected to be charged,
received or paid (as appropriate) between independent persons dealing at arm's
length and no notice or enquiry pursuant to Section 770 of the TA has been made
in connection with any of such transactions.
(xix) (a) No balancing charge in respect of any capital
allowances claimed or given would arise if any assets of VDS (UK) were to be
realized for a consideration equal to the amount of the book value thereof as
shown or included in the VDS (UK) Balance Sheet.
(b) All necessary conditions for capital
allowances (as defined in Section 832(1) of the TA) claimed by VDS (UK) were at
all material times satisfied and remain satisfied and VDS (UK) has not since
April 30, 1997, become liable for any balancing charge.
(xx) No chargeable gain or profit (disregarding the
effects of any indexation relief available) would arise if any assets of VDS
(UK) (other than trading stock) were to be realized for a consideration equal to
the amount of the book value thereof as shown or included in the VDS (UK)
Balance Sheet.
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43
(xxi) VDS (UK) has not entered into nor been a party to
nor otherwise involved in any scheme or arrangement designed wholly or partly
for the purpose of avoiding or deferring tax.
(xxii) VDS (UK) is not nor has it ever been a close
company as defined by Section 414 of the TA.
(xxiii) VDS (UK) is not, and will not become, liable to
be assessed to capital transfer tax or inheritance tax as donor or donee of any
gift or transferor or transferee of value (actual or deemed) nor as a result of
any disposition chargeable transfer or transfer of value (actual or deemed) made
by or deemed to be made by any other person.
(xxiv) There is no unsatisfied liability to capital
transfer tax attached or attributable to the shares or any asset of VDS (UK) and
in consequence no person has the power to raise the amount of such tax by sale
or mortgage of or by a terminable charge on any of the shares or assets of VDS
(UK) as mentioned in Section 212 of the Inheritance Tax Act 1984 ("I.H.T.A.")
and none of the shares or assets of VDS (UK) are subject to an Inland Revenue
charge within Section 237 of the I.H.T.A.
(xxv) (a) VDS (UK) is a registered taxable person for
the purpose of the VAT legislation (as defined below) and has not at any time
been treated as a member of a group of companies for such purpose and has not
made any application to be so treated and no circumstances exist whereby VDS
(UK) would or might become liable for value added tax as an agent or otherwise
by virtue of Section 47 of the Value Added Tax Act 1994 ("V.A.T.A.").
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44
(b) VDS (UK) has complied in all respects with
the requirements and provisions of the V.A.T.A. and all regulations and orders
made thereunder (the "VAT LEGISLATION") and has made and maintained and will
continue to make and maintain accurate and up to date records, invoices,
financial statements, and other documents required by or necessary for the
purposes of the VAT legislation and VDS (UK) has at all times punctually paid
and made all payments and returns required thereunder.
(c) VDS (UK) has not made any exempt supplies
in consequence of which it is or will be unable to obtain credit for all input
tax paid by it during any VAT quarter ending after April 30, 1997.
(xxvi) VDS (UK) has duly paid all capital duty and loan
capital duty for which it is or has at any time been liable and all documents in
the enforcement of which VDS (UK) is or may be interested have been duly stamped
and since April 30, 1997 VDS (UK) has not been a party to any transaction
whereby VDS (UK) was or is or could become liable to stamp duty reserve tax.
(R) Additional Representations.
(a) No representation or warranty made by the Company or
any Seller in this Agreement, and no statement made in any certificate,
Seller-prepared or Sellers' Representative-prepared document, Company-prepared
document, Subsidiary-prepared document, exhibit or schedule or, to the knowledge
of the Company, any of the Subsidiaries, or any Seller, any third-party document
furnished or to be furnished in connection with the transactions herein
contemplated, contains any untrue statement of a material fact or omits to
state, when read in
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45
conjunction with all of the information contained in this Agreement and the
Schedules, any material fact necessary to make such representation, warranty or
statement not misleading.
(b) (i) Except as disclosed on Schedule 2.1(R), there
are no past or present events, conditions, circumstances, activities, practices,
incidents, agreements, actions or plans which have given rise to or will give
rise to any liability on the part of the Company or any of the Subsidiaries
under any Environmental Law (as defined below) or principles of common law
relating to pollution, protection of the environment or health and safety, (ii)
no real property currently or formerly owned or operated by the Company or any
of the Subsidiaries is contaminated with any Hazardous Substances as defined
below to an extent or in a manner or condition now requiring remediation under
any Environmental Law; or (iii) no judicial or administrative proceeding is
pending or, to the knowledge of any of the Sellers, the Company or any of the
Subsidiaries, threatened relating to liability for any off-site disposal or
contamination; and (iv) neither the Company nor any of the Subsidiaries has
received any claims or notices alleging liability under any Environmental Law
(as defined below) and none of the Company, any of the Sellers or any of the
Subsidiaries has any knowledge of any circumstances that could result in such
claims. Schedule 2.1(R) lists all contracts and agreements which involve the
use, handling, storage, transport or disposal of any Hazardous Substance.
"ENVIRONMENTAL LAW" means any applicable federal, state, foreign or local law,
regulation, code, order, decree, judgment, injunction or judicial opinion or
other agency requirement having the force and effect of law and relating to
pollution, health
<PAGE>
46
and safety, noise, odor, Hazardous Substance or the protection of the
environment. "HAZARDOUS SUBSTANCE" means any toxic or hazardous substance that
is regulated by or under authority of any Environmental Law, including any
petroleum products, asbestos or polychlorinated biphenyls.
(S) Accounts and Notes Receivable. All accounts and notes
receivable reflected on the Balance Sheet, and all accounts and notes receivable
arising subsequent to September 30, 1996, (i) (except those collected since such
date) have arisen in the ordinary course of business of the Company or the
Subsidiaries and represent valid obligations due to the Company or the
Subsidiaries and (ii) subject only to a reserve for bad debts computed in a
manner consistent with past practice and reasonably estimated to reflect the
probable results of collection, have been collected or are collectible in the
ordinary course of business of the Company or the Subsidiaries (as the case may
be) in the aggregate recorded amounts thereof in accordance to their terms.
(T) Potential Conflicts of Interest. Except as set forth on
Schedule 2.1(T), to the knowledge of the Company and the Subsidiaries (a) no
Seller, and (b) no officer or director or affiliate of the Company or any of the
Subsidiaries, (c) no relative or spouse (or relative of such spouse) of any such
officer, director or affiliate or of a Seller, and (d) no entity controlled by
any one or more of the foregoing: (i) owns, directly or indirectly, any interest
in (excepting not more than 5% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer, director,
employee or consultant of, any person or entity which is, or is engaged in
business as, a competitor, lessor, lessee, customer,
<PAGE>
47
distributor, sales agent, or supplier of the Company or any of the Subsidiaries;
(ii) owns, directly or indirectly, in whole or in part, any tangible or
intangible property that the Company or any of the Subsidiaries uses or the use
of which is necessary or desirable for the conduct of their respective business;
(iii) has any cause of action or other claim whatsoever against, or owes any
amount to, the Company or any of the Subsidiaries, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements existing on the
date hereof; or (iv) on behalf of the Company or any of the Subsidiaries, has
made any payment or commitment to pay any commis sion, fee or other amount to,
or purchase or obtain or otherwise contract to purchase or obtain any goods or
services from, any corporation or other person of which any officer or director
of the Company or any of the Subsidiaries, or a relative of any of the
foregoing, is a partner or stockholder (excepting stock holdings solely for
investment purposes in securities of publicly held and traded companies).
(U) Liabilities. As of September 30, 1996, none of the Company
or any of the Subsidiaries had any direct or indirect indebtedness, liability,
claim, loss, damage, deficiency or obligation or responsibility, known or
unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise, whether or not
of a kind required by GAAP to be set forth on a financial statement or in the
notes thereto ("LIABILITIES"), that were not fully and adequately reflected or
reserved against on the Balance Sheet or described on any Schedule or in the
notes to the Reviewed Financials. None of the Company, any of the Subsidiaries
or any of the Sellers has any knowledge of any
<PAGE>
48
circumstance, condition, event or arrangement that may hereafter give rise to
any Liabilities of the Company or any of the Subsidiaries, or any successor to
their respective businesses except in the ordinary course of business or as
otherwise set forth on Schedule 2.1(U).
(V) Real Property. Neither the Company nor any of the
Subsidiaries owns, nor has the Company or any of its Subsidiaries agreed to
purchase, any real property. Schedule 2.1(V) identifies all of the real property
which the Company or any of the Subsidiaries leases, has agreed to lease or has
an obligation to lease in connection with its business. Such leased real
property is hereinafter referred to as the "LEASED PROPERTY." There are no
adverse parties in possession of the Leased Property or any portion or portions
thereof, and on the Closing Date the leasehold interests in the Leased Property
will be free and clear of any and all leases, licensees, occupants or tenants
except as set forth in Schedule 2.1(V). There are no pending or, to the
knowledge of the Company, any of the Subsidiaries or any of the Sellers,
threatened, condemnation, eminent domain or similar proceedings, affecting the
Leased Property, any improvements thereon or any portion thereof. There are no
pending or, to the knowledge of the Company, any of the Subsidiaries or any of
the Sellers, threatened requests, applications or proceedings to alter or
restrict any zoning or other use restrictions applicable to the Leased Property
or any improvements thereon which would interfere with the conduct of the
business of the Company or any of the Subsidiaries or the use of their
respective assets consistent with past practice.
<PAGE>
49
(W) Labor Matters. The Company and each of the Subsidiaries is
not now, and has not been in the last five years, bound by or party to any
collective bargaining agreement and, to the knowledge of each of the Sellers,
the Company and each of the Subsidiaries, no application for certification of a
collective bargaining agent is pending. The Company and each of the Subsidiaries
is in compliance with all applicable laws affecting employment practices and
terms and conditions of employment. As of the Closing Date neither the Company
nor any of the Subsidiaries has incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act, as it may be amended from
time to time, or similar applicable state law; nor has the Company or any of the
Subsidiaries taken any action prior to the Closing Date which could result in
any such liability or obligation to the Company or any of the Subsidiaries
within the six-month period immediately following the Closing Date if, during
such six-month period, only terminations of employment in the normal course of
operations occur. To the knowledge of the Sellers, the Company, and each of the
Subsidiaries, the Company and each of the Subsidiaries does not and has not
employed any illegal aliens.
2.2 Representations and Warranties with Respect to the Purchaser.
The Purchaser represents and warrants to the Sellers as follows:
(A) Organization of the Purchaser. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia, with all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being or heretofore conducted.
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50
(B) Authority to Execute and Perform Agreement. The Purchaser
has full right and power and all authority and approvals required to enter into,
execute and deliver this Agreement and each and every agreement and instrument
contemplated hereby to which it is or will be a party and to perform fully its
obligations hereunder and thereunder. This Agreement has been duly executed and
delivered by the Purchaser, and on the Closing Date, each and every agreement
and instrument contemplated hereby to which the Purchaser is a party on the
Closing Date will be duly executed and delivered by the Purchaser. Assuming due
execution and delivery hereof and thereof by the Company, the Sellers and the
Sellers' Representa tive, this Agreement and each such other agreement and
instrument will be valid and binding obligations of the Purchaser enforceable
against the Purchaser in accordance with their respective terms, except that
such enforceability may be subject to (i) bankruptcy, insolvency, reorganization
or other similar laws affecting or relating to enforcement of creditors' rights
generally, and (ii) general equitable principles.
(C) Consents and Approvals. None of the execution and delivery
of this Agreement and each and every other agreement and instrument contemplated
hereby by the Purchaser, the consummation by the Purchaser of the transactions
contemplated hereby or thereby or compliance by the Purchaser with any of the
provisions hereof or thereof will require any consent, approval or action of, or
make any filing with or give notice to, any Governmental Body.
(D) Non-Contravention. The execution and delivery of this
Agreement by the Purchaser and the execution of each and every other agreement
and instrument contemplated hereby by or on behalf of, and the consummation of
the
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51
transactions contemplated hereby and thereby and the performance by the
Purchaser of this Agreement and each such other agreement and instrument in
accordance with their respective terms will not (a) violate any provision of the
Certificate of Incorporation or By-Laws (or comparable instruments) of the
Purchaser, (b) violate any law, regulation, statute, injunction, order,
arbitration award, judgment or decree applicable to, against, or binding upon,
the Purchaser or by which any of the Purchaser's securities, business or
property is bound, or (c) violate or result in the revocation or suspension of
any of the Purchaser's permits.
(E) Financing. The Purchaser has received oral approval from
its bank lenders necessary to finance the transactions contemplated hereby,
subject to completion of written amendment documents, reasonably satisfactory
drafts of which have been provided to the Purchaser, and payment of required
fees.
ARTICLE III
Additional Agreements of the Parties
3.1 No Section 338 Election. Neither Purchaser nor any affiliate
thereof shall (i) make an election under Section 338 of the Code or any similar
provision of state or local law in respect of the purchase of stock of the
Company or (ii) cause the Company to engage in any transaction that could cause
the purchase of stock of the Company to be treated as a purchase or sale of the
assets of the Company for federal, state, local or foreign Tax purposes.
3.2 Tax Return Filing. The Sellers shall cause the Company and each
of the Subsidiaries to prepare, in a manner consistent with past practices, and
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timely file all Tax Returns required to be filed by the Company and each of the
Subsidiaries, the due date of which (without extensions) occurs on or before the
Closing Date and pay all Taxes due with respect to any such Tax Returns.
3.3 Further Assurances. At any time and from time to time after the
Closing, each of the parties agree to cooperate with each other and to execute
and deliver such other documents, instruments of transfer or assignment, files,
books and records and do all such further acts and things as may be reasonably
required to carry out the transactions contemplated hereunder.
3.4 Access to Records. Prior to the Closing Date, the Purchaser
shall be entitled, through its employees and representatives, including, without
limitation, Paul, Weiss, Rifkind, Wharton & Garrison and accountants, to make
such investigation of the assets, properties, business and operations of the
Company and the Subsidiaries, and such examination of the books, records and
financial condition of the Company and the Subsidiaries as the Purchaser wishes.
Any such investigation and examination shall be conducted at reasonable times
and under reasonable circumstances and each Seller shall, and shall cause the
Company and each of the Subsidiaries to, cooperate fully therein. No
investigation by the Purchaser shall diminish or obviate any of the
representations, warranties, covenants or agreements of each Seller contained in
this Agreement. In order that the Purchaser may have full opportunity to make
such business, accounting and legal review, examination or investigation as it
may wish of the business and affairs of the Company and the Subsidiaries, the
Sellers shall furnish and shall cause the Company and the Subsidiaries to
furnish the representatives of the Purchaser during such period with all
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53
such information and copies of such documents concerning the affairs of the
Company and the Subsidiaries as such representatives may reasonably request,
shall make available, or cause the Company and the Subsidiaries to make
available, such officers and employees of the Company as such representatives
reasonably request, and shall cause its officers, employees, consultants,
agents, accountants and attorneys to cooperate fully with such representatives
in connection with such review and examination and to make full disclosure to
the Purchaser of all material facts affecting the financial condition and
business operations of the Company and the Subsidiaries. Following the Closing,
each party shall afford the other and its authorized represen tatives access,
during regular business hours, to any books and records of the Company and the
Subsidiaries to the extent they relate to a period prior to the Closing Date
that such party shall from time to time reasonably request. From the date
hereof, at the Purchaser's request, each Seller shall give the Purchaser and its
authorized representatives full access, during regular business hours, to such
Seller's records related to the Company and/or the Subsidiaries located other
than in the possession of the Company or the Subsidiaries, and shall permit the
Purchaser to make a copy of any such documents as the Purchaser shall designate.
Notwithstand ing anything to the contrary in this Section 3.4, neither the
Company nor any of the Subsidiaries shall be required to disclose any classified
information in violation of any applicable law.
3.5 Preservation of Records. The Purchaser agrees that it shall at
its sole expense preserve and keep the records of the Sellers, the Company and
the Subsidiaries (including any successors thereto) delivered to it hereunder
for a period
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54
of no less than six years after the close-out of each government contract or for
such longer period as may be required by any governmental agency or on account
of on-going litigation, but for no less than one year from the Closing Date and
shall make such records available to the Sellers as may be reasonably required
by the Sellers in connection with any legal proceedings against or governmental
investigations of the Sellers or in connection with any tax examination of the
Sellers. In the event the Purchaser wishes to destroy such records after that
time, it shall first give thirty (30) days prior written notice to the Sellers'
Representative and the Sellers' Representative shall have the right at its
option, upon prior written notice given to the Purchaser within said thirty (30)
day period, to take possession of said records within sixty (60) days after the
date of the Sellers' Representative's notice to the Purchaser hereunder. If the
Sellers' Representative fails to take possession of said records within such
sixty (60) day period, the Purchaser may destroy such records.
3.6 Confidentiality. From and after the date of this Agreement, in
the event of the consummation of the transaction contemplated hereby, each
Seller shall keep any and all information relating to the Company and the
Subsidiaries, their business operations and prospects (including, but not
limited to, customer lists and related information), services and know-how
confidential and shall not disclose such to any person; PROVIDED, HOWEVER, such
Seller may disclose such information that (i) is or becomes publicly available
other than by disclosure by any Seller, the Sellers' Representative or any agent
thereof or (ii) such Seller is required to disclose by law, government
regulation or court order or in order to enforce the terms of this Agreement but
such Seller will give the Purchaser adequate advance notice so that the
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55
Purchaser may seek a protective order or take other reasonable actions to
preserve the confidentiality of such information.
3.7 Efforts; Consents. The Purchaser and each Seller agree to use
all reasonable efforts to take or cause to be taken all actions necessary,
proper or advisable to consummate the transactions contemplated in this
Agreement. Without limiting the generality of the foregoing, each of the parties
hereto shall use all reasonable efforts to obtain the authorizations, consents,
orders and approvals of federal, state, and local regulatory bodies and
officials that may be or become necessary for the performance of its obligations
pursuant to this Agreement and the consummation of the transactions contemplated
hereby and will cooperate fully in promptly seeking to obtain such
authorizations, consents, order and approvals as may be necessary for the
performance of their respective obligations pursuant to this Agreement. The
Purchaser will not take any action which will have the effect of delaying,
impairing or impeding the receipt of any required regulatory approvals and will
use its best efforts to secure such approvals as promptly as possible.
3.8 Return of Information and Confidentiality. The confidentiality
terms of the Non-Disclosure Agreement, dated April 16, 1997, between the
Purchaser and Boles & Company, Inc. for the benefit of the Company, applicable
to the Purchaser are herewith incorporated by reference and shall continue in
full force and effect until the Closing. In the event the Closing under this
Agreement does not occur in accordance with the terms hereof for any reason, the
Purchaser shall (a) immediately return to the Sellers all written information
(and all copies hereof) regarding the Company and the Subsidiaries, obtained
from the Company or VDS
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56
(UK) by the Purchaser in the course of investigating its purchase of the Shares,
or negotiating this Agreement or delivered to it pursuant to this Agreement and
(b) destroy all documents, memoranda, notes and other writings whatsoever
prepared by or on behalf of the Purchaser containing any such information.
3.9 Ordinary Course of Business. From the date hereof until the
Closing Date, unless otherwise agreed to by the Purchaser, each Seller agrees
that it shall cause the Company and each of the Subsidiaries to conduct their
business and operations in the ordinary course and in substantially the same
manner in which the same have heretofore been conducted and not to undertake any
of the actions specified in Section 2.1(F).
3.10 Insurance Proceeds, Litigation Rights. In the event that any
property owned or leased by the Company or any of the Subsidiaries suffers any
material damage, destruction or other casualty loss, and the Closing occurs in
accordance with the terms hereof, the Sellers shall surrender to the Company,
the Subsidiaries and the Purchaser (i) all insurance proceeds received by the
Sellers with respect to such damage or loss and (ii) all rights of the Sellers
with respect to any causes of action, whether or not litigation has commenced on
the Closing Date, in connection with such damage or loss. Nothing in this
Section 3.10 shall be construed to limit or prejudice the Purchaser's rights and
remedies under this Agreement, including, without limitation, the Purchaser's
right not to consummate the transactions contemplated hereby if all of the
conditions set forth in Section 4.2 are not satisfied or waived, in the sole
discretion of the Purchaser.
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57
3.11 Benefit Plans. Purchaser hereby agrees that immediately
following the Closing the Purchaser will cause the Company and the Subsidiaries
to continue in full force and effect, for a period of at least six (6) months
after the Closing Date, all of the Plans maintained by the Company and the
Subsidiaries as in effect on the Closing Date and as set forth on Schedule
2.1(M) hereto, and will during such period of at least six months contribute (or
cause the Company and the Subsidiaries to continue to contribute) all required
contributions and pay all required premiums under such Plans which are ERISA
Section 3(3) "employee benefit plans"; PROVIDED, HOWEVER, that nothing in this
Agreement shall be construed to limit the ability of Purchaser to modify, amend
or terminate any benefits to any individual, or terminate the employment of any
individual, at any time after the Closing Date.
3.12 Benefits Disclosure. For each of the following employee
benefits plans the Sellers shall cause the Company to (i) file all required Form
5500s with the Department of Labor and the Internal Revenue Service for any year
preceding the Closing in which the requirements for such filings were met, (ii)
file all required Plan Documents and Summary Plan Descriptions with the
Department of Labor for any year preceding the Closing in which the requirements
for such filings were met, and (iii) distribute to all Plan participants Summary
Plan Descriptions and Annual Reports as required for the year preceding the
Closing: life insurance; accidental death and dismemberment; medical and dental;
short-term disability and long-term disability.
3.13 Employee Arrangements. Subject to Section 3.11 hereof, from and
after the Closing Date, the Purchaser shall cause the Company and each of the
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Subsidiaries to (i) provide all salaried employees of the Company and each of
the Subsidiaries as of the Closing Date ("COMPANY EMPLOYEES") with service
credit for all periods of employment with the Company or the Subsidiaries prior
to the Closing Date for purposes of satisfying any service requirements for
early retirement under any defined contribution plan in effect on the date
hereof or under any substantially similar replacement plan adopted by Purchaser,
the Company, the Subsidiaries or any of their affiliates (or any successor
entity to any of the foregoing) with respect to Company Employees and (ii) waive
any pre-existing condition of any Company Employee for purposes of determining
eligibility for, and the terms upon which they participate in, any welfare plan
adopted by Purchaser, the Company, the Subsidiaries or any of their affiliates
(or any successor entity to any of the foregoing) with respect to Company
Employees (other than conditions that are already in effect with respect to such
employees under the Company's or the Subsidiaries' welfare plans that have not
been satisfied as of the Closing Date). The foregoing shall not apply to any
employees of Digital Healthcare Solutions, L.L.C.
3.14 Preservation of Business. From the date hereof through the
earlier of the Closing Date or the termination of this Agreement in accordance
with its terms, the Sellers shall cause the Company and the Subsidiaries to
preserve their respective business organizations intact, keep available the
services of their respective present officers, employees, consultants and
agents, maintain their respective present suppliers and customers and preserve
their respective goodwill.
3.15 Litigation. From the date hereof through the Closing Date, the
Sellers shall cause the Company to notify promptly the Purchaser of any actions
or
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59
proceedings of the type described in Section 2.1(G) that from the date hereof
are commenced or, to the knowledge of any Seller, the Company or any of the
Subsidiaries, threatened against the Company or any of the Subsidiaries, against
any officer, director, employee, consultant, agent, shareholder or other
representative of the Company or any of the Subsidiaries with respect to their
affairs.
3.16 Agreements. From the date hereof through the Closing Date, the
Sellers shall cause the Company and the Subsidiaries to notify the Purchaser
promptly of any evidence that any party to a contract or other agreement listed
in Schedule 2.1(O) has terminated or failed to renew or intends to terminate or
fail to renew any such contract or agreement or that any party has asserted or
intends to assert any claim under any such contract or agreement.
3.17 Continued Effectiveness of Representations and Warranties. From
the date hereof through the Closing Date, the Sellers shall cause the Company
and each of the Subsidiaries to conduct its business in such a manner so that
the representations and warranties contained in Section 2.1 shall continue to be
true and correct on and as of the Closing Date as if made on and as of the
Closing Date, and the Purchaser shall conduct its business in such a manner so
that the representations and warranties contained in Section 2.2 shall continue
to be true and correct on and as of the Closing Date as if made on and as of the
Closing Date, and all of the Sellers shall conduct their affairs in such a
manner so that the representations and warranties contained in Section 2.1 shall
continue to be true and correct on and as of the Closing Date as if made on and
as of the Closing Date, and each party shall promptly give notice to the other
parties of any event, condition or circumstance occurring from the
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60
date hereof through the Closing Date that would constitute a violation or breach
by it of this Agreement.
3.18 Satisfaction of Conditions Precedent. During the term of the
Agreement, the parties hereto will use all reasonable efforts to satisfy (or
cause to be satisfied) all the conditions precedent to their respective
obligations.
3.19 Exclusivity. As an inducement to the Purchaser to enter into
this Agreement, and in consideration of the time and expense which it has
devoted and will devote to the transactions contemplated hereby during such
period, subsequent to the execution of this Agreement and until the earlier of
the Closing Date or the termination hereof in accordance with Article VI, none
of the Sellers nor the Company nor any of their respective representatives
(including, without limitation, any investment banker, attorney or accountant
retained or acting on behalf of the Company or by any of the Sellers and any
director, officer or employee of the Company) will, directly or indirectly, (i)
initiate, solicit, encourage or respond to any inquiry or proposal with respect
to a merger, consolidation, share exchange, business combination, liquidation,
dissolution or sale of all or a portion of the assets of the Company or any of
the Subsidiaries outside the ordinary course of business or any purchase of any
of the outstanding shares of its capital stock (an "ACQUISITION PROPOSAL"), or
(ii) enter into any discussions, negotiations or agreements concerning an
Acquisition Proposal with, or disclose any information concerning the Company or
any of the Subsidiaries, their businesses or properties or afford any access to
their properties, books and records to, or otherwise assist or facilitate any
effort relating to an Acquisition Proposal, by any corporation, individual,
partnership, company,
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61
association, trust, person or other entity or group (a "PERSON"). The Sellers,
the Company and the Subsidiaries will immediately cease any existing discussions
with any Persons concerning any Acquisition Proposal.
3.20 Certain Covenants of the Purchaser.
(A) The Purchaser agrees that from and after the Closing Date
until September 30, 1999, the Purchaser shall maintain a consolidated financial
reporting system that will be sufficient to permit an independent firm of
accountants to determine the Revenue and Gross Profit of the Company and its
Subsidiaries, and consequently, the amount of Contingent Consideration payable,
if any, pursuant to Section 1.6. If after the Closing Date until September 30,
1999, any contracts of the Company or its Subsidiaries are transferred,
assigned, or otherwise allocated or attributed, for financial reporting
purposes, (including, without limitation, by way of merger or other
consolidation or combination of the Company and/or its Subsidiaries with the
Purchaser and/or its other subsidiaries) to the Purchaser or any of its other
subsidiaries (other than the Company and/or its Subsidiaries), or any contracts
are awarded to the Purchaser or any of its subsidiaries (other than the Company
and its Subsidiaries) towards which substantial business development costs
and/or bid and proposal expenditures have been incurred by the Company and/or
its Subsidiaries, then equitable and reasonable adjustments shall be made in
calculating the Revenue and Gross Profit of the Company and its Subsidiaries,
and consequently, the amount of Contingent Consideration payable, if any, to
eliminate the effect of any transfer, assignment, allocation or attribution and
no such transfer, assignment, allocation or attribution shall be made unless the
financial reporting system referred to in the
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62
immediately preceding sentence is capable of tracking the performance of
distinct contracts in a manner that will permit such determination of Revenue
and Gross Profit of the Company and its Subsidiaries, and consequently, of the
amount of Contingent Consideration payable pursuant to the terms of this
Agreement. If after the Closing Date until September 30, 1999, any contracts of
the Purchaser or its subsidiaries (other than the Company and its Subsidiaries)
are transferred, assigned, or otherwise allocated or attributed, for financial
reporting purposes, (including, without limitation, by way of merger or other
consolidation or combination of the Company and/or its Subsidiaries with the
Purchaser and/or its other subsidiaries) to the Company or its Subsidiaries
(including, without limitation, by way of merger or other consolidation or
combination of the Company and/or its Subsidiaries with the Purchaser and/or any
of its other subsidiaries), or any contracts are awarded to the Company or any
of its Subsidiaries towards which substantial business development costs and/or
bid and proposal expenditures have been incurred by the Purchaser or its
subsidiaries (other than the Company and its Subsidiaries), then equitable and
reasonable adjustments shall be made in calculating the Revenue and Gross Profit
of the Company and its Subsidiaries, and consequently, the amount of Contingent
Consideration payable, if any, to eliminate the effect of any transfer,
assignment, allocation or attribution and no such transfer, assignment,
allocation or attribution shall be made unless the financial reporting system
referred to in the immediately preceding sentence is capable of tracking the
performance of distinct contracts in a manner that will permit such
determination of Revenue and Gross Profit of the Company and its Subsidiaries,
and consequently, of the amount of Contingent Consideration payable pursuant to
the
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terms of this Agreement. All actions taken by the Purchaser during the period
covered by this Section 3.20(A) shall be in good faith and not for the purpose
of reducing the amount of Contingent Consideration payable pursuant to the terms
of this Agreement.
(B) The Purchaser shall cause the Company to be operated as a
wholly-owned subsidiary until at least the 181st day following the Closing Date.
The Purchaser shall offer, or shall cause the Company to offer, to United
States-based employees of the Company from the Closing Date until and including
the 180th day following the Closing Date the same or reasonably equivalent
benefits as provided by the Company on the date hereof. Following such 180-day
period, the Purchaser shall offer, or cause the Company to offer, to such
employees the same or similar fringe benefit plans that the Purchaser offers its
other employees.
(C) The Purchaser agrees that from the Closing Date until
September 30, 1999, it shall not (i) terminate or permit the Company to
terminate the employment of Barrie A. Gillis or Stanley E. Graves unless such
termination is made in good faith, or (ii) reduce the base compensation or,
except in good faith, scope of responsibility of such individuals as in effect
or applicable immediately prior to the Closing.
(D) The Purchaser shall develop compensation packages for the
senior management team of the Company and VDS-UK to include participation in
Purchaser's incentive compensation program.
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ARTICLE IV
Conditions to Closing
4.1 Conditions to Obligations of the Sellers. The obligations of the
Sellers to consummate the sale of Shares to be sold hereunder are, at their
option, subject to the fulfillment or waiver, prior to or on the Closing Date,
of each of the following conditions:
(A) Regulatory Authorizations. All authorizations, consents,
orders and approvals of federal and state regulatory bodies and officials
necessary for the consummation by the Sellers of the sale and purchase of the
Shares to be sold hereunder shall have been obtained, and there shall be in
effect no preliminary or permanent injunction or other order of a court or
governmental or regulatory agency of competent jurisdiction directing that the
transaction contemplated herein, or any of them, not be consummated
(collectively, an "ORDER").
(B) Representations and Warranties; Covenants. The
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all respects at the date hereof and at and as of
the Closing Date, with the same force and effect as if made at and as of the
Closing Date; and the Purchaser shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
(C) Certificate. The Purchaser shall have delivered to the
Sellers a certificate, dated the Closing Date, of officers of the Purchaser to
the effect
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that the conditions specified in paragraphs (A) and (B) of this Section 4.1 have
been satisfied.
(D) Opinion of Counsel to the Purchasers. The Sellers'
Representative shall have received the opinion of Curtis L. Schehr and Paul,
Weiss, Rifkind, Wharton & Garrison, general counsel and special counsel,
respectively, to the Purchaser, dated the date of the Closing, addressed to the
Sellers, in the form of Exhibit II.
(E) Execution of Escrow Agreement. The Purchaser shall have
executed and delivered to the Sellers' Representative the Escrow Agreement.
(F) Payment of Closing Payment. The Purchaser shall pay to the
Sellers' Representative the Closing Payment simultaneous with the Closing, in
accordance with Section 1.2 of this Agreement.
4.2 Conditions to Obligation of the Purchaser. The obligation of the
Purchaser to consummate the purchase of the Shares hereunder is subject, at its
option, to the fulfillment or waiver, prior to or on the Closing Date, of each
of the following conditions:
(A) Regulatory and other Authorizations. All authorizations,
consents, orders and approvals of federal and state and regulatory bodies and
officials necessary for the performance by the Purchaser of this Agreement and
the consummation of the sale and purchase of the Shares hereunder shall have
been obtained and there shall be no Order in effect.
(B) Representations and Warranties; Covenants. The
representations and warranties of each Seller contained in this Agreement shall
be true
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66
and correct in all respects at the date hereof and at and as of the Closing
Date, with the same force and effect as if made at and as of the Closing Date,
and the Sellers shall have performed or complied in all material respects with
all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date.
(C) Governmental Permits and Approvals. All Permits required
for the lawful consummation of the Closing shall have been obtained and be in
full force and effect, and the Purchaser shall have been furnished with evidence
reasonably satisfactory to it that such Permits have been granted and obtained.
(D) Third Party Consents. All consents, permits and approvals
from parties to contracts or other agreements with the Company, the Subsidiaries
or with any Seller that may be required in connection with the performance by
any Seller of its obligations under this Agreement or the continuance of such
contracts or other agreements with the Company or the Subsidiaries after the
Closing shall have been obtained and be in full force and effect, and the
Purchaser shall have been furnished with evidence reasonably satisfactory to it
that such consents, permits and approvals have been granted and obtained.
(E) Opinion of Counsel to the Sellers and the Company. The
Purchaser shall have received the opinion of Holland & Knight, counsel to the
Company and the Sellers, and the opinion of Keyworth & Co. Solicitors, counsel
to VDS (UK), dated the date of the Closing, addressed to the Purchaser, in the
form attached as Exhibit III.
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(F) Delivery of Stock Certificates. The Sellers shall have
delivered to the Purchaser at the Closing stock certificates representing all of
the Shares duly endorsed in blank or accompanied by stock powers duly executed
in blank, in proper form for transfer.
(G) Working Capital. On the Closing Date, the Company shall
have at least $2,300,000 of Working Capital.
(H) Cash. Either (i) the Company shall have at least
$1,850,000 of Cash on the Closing Date and the Sellers shall have reasonably
demonstrated to the Purchaser that the Company had not less than $3,000,000 of
Working Capital as of July 31, 1997, or (ii) on the Closing Date, the Company
shall have at least $2,000,000 of Cash.
(I) Vector Data Systems (UK) Limited. On the Closing Date, the
Company owns at least 80% of the issued and outstanding capital stock of VDS
(UK) on a fully diluted basis and the Sellers shall have provided the Purchaser
with evidence satisfactory to the Purchaser to such effect in accordance with
Section 1.5(b).
(J) Digital Healthcare Solutions, L.L.C. On the Closing Date,
(i) the Company shall have been discharged of all liabilities and obligations to
Digital Healthcare Solutions, L.L.C., a Virginia limited liability company, John
J. Merendino, Sr., a physician licensed to practice medicine in the State of
Maryland, John J. Merendino, Sr., M.D., P.A., a professional corporation
organized under the laws of the State of Maryland, Medical Rehabilitation
Support Services, now known as MRSS, Inc., a health care company organized and
existing under the laws of the
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State of Maryland, John J. Merendino, Jr. and Automated Billing Services, a
health care insurance billing company, having its principal place of business in
Maryland; (ii) the Company shall have withdrawn as a member of Digital and shall
have no further obligations or liabilities under the Operating Agreement of
Digital Healthcare Solutions, L.L.C., dated April 3, 1997, among VDS, John J.
Merendino, Sr. and John J. Merendino, Jr.; and (iii) the Digital Healthcare
Solutions, L.L.C. Contribution Agreement (Vector), dated April 3, 1997 shall
have been terminated and be of no further force and effect.
(K) Non-Competition. At the Closing, each of the following
Sellers shall have executed and delivered a non-compete and non-disclosure
agreement in substantially the form attached as Exhibit IV: Leonard H. Perroots,
Barrie A. Gillis, Stanley E. Graves, Richard H. Robey, Milferd E. Barnett,
Joseph J. Cane and Donald Mayes.
(L) Certificate. The Sellers shall have delivered to the
Purchaser a certificate, dated the Closing Date, to the effect that the
conditions speci fied in paragraphs (A) through (D) and (G) through (J) of this
Section 4.2 have been satisfied.
(M) Satisfaction of Preemptive Rights. The Sellers shall have
delivered documentation satisfactory to the Purchaser evidencing the waiver,
release, extinguishment and satisfaction of any and all preemptive or similar
rights, including, without limitation, pursuant to Section 651 of the Virginia
Stock Corporation Act, that exist or may exist with respect to the capital stock
of the Company held by the shareholders identified on Schedule 1.2.
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69
ARTICLE V
Fees Relating to this Transaction
Except for the commission and fees of Boles and Company which will
be paid by the Sellers, the Sellers represent and warrant to the Purchaser that
no broker, finder, agent or similar intermediary has acted on behalf of the
Company, any of the Subsidiaries or any Seller in connection with this Agreement
or the transactions contemplated hereby, and that there are no brokerage
commissions, finders' fees or similar fees or commissions payable in connection
therewith based on any agreement, arrangement or understanding with the Company,
any of the Subsidiaries or any of the Sellers, or any action taken by the
Company, any of the Subsidiaries or any Seller. The Purchaser represents and
warrants to the Sellers that no broker, finder, agent or similar intermediary
has acted on behalf of the Purchaser in connection with this Agreement or the
transactions contemplated hereby, and that there are no brokerage commissions,
finders' fees or similar fees or commissions payable in connection therewith
based on any agreement, arrangement or understanding with the Purchaser or any
action taken by the Purchaser. Each such party (the Purchaser on the one hand
and each Seller on the other) agrees to indemnify and save the other harmless
from any claim or demand for commission or other compensation by any broker,
finder, agent or similar intermediary claiming to have been employed by or on
behalf of the Purchaser, on the one hand, or the Company, any of the
Subsidiaries or any of the Sellers, on the other, and to bear the cost of legal
expenses incurred in defending against any such claim.
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ARTICLE VI
Termination
6.1 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated prior to the Closing as follows:
(a) by the mutual written consent of the parties to this
Agreement;
(b) by the Sellers or the Purchaser, by notice to the other,
if, for any reason, the Closing has not occurred prior to 12:01 am on September
17, 1997;
(c) at the election of the Sellers, if the Purchaser has
breached any representation, warranty, covenant or agreement contained in this
Agreement, which breach has not been cured on or prior to ten (10) days
following delivery of written notice of such breach by the Sellers'
Representative to the Purchaser;
(d) at the election of the Purchaser, if any Seller or the
Company has breached any representation, warranty, covenant or agreement
contained in this Agreement, which breach has not been cured on or prior to ten
(10) days following delivery of written notice of such breach by the Purchaser
to the Sellers' Representative;
(e) at the election of the Purchaser, if any legal proceeding
is commenced or threatened by any Governmental Body directed against the
consummation of the Closing or any other transaction contemplated under this
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Agreement and the Purchaser reasonably and in good faith deems it impractical or
inadvisable to proceed in view of such legal proceeding or threat thereof.
If this Agreement so terminates, it shall become null and void and
have no further force or effect except as provided in Section 6.2.
6.2 Effect of Termination; Expenses. In the event of the termination
of this Agreement pursuant to Section 6.1, this Agreement shall thereafter
become void and have no further force or effect. Except as provided herein, none
of the parties hereto shall have any liability in respect of the termination of
this Agreement except to the extent that failure to satisfy the conditions of
Section 4 results from the violation of the representations, warranties,
covenants or agreements of such party under this Agreement, in which case (i)
the termination of this Agreement will not prejudice any legal rights of any
party whether those rights arise under this Agreement or otherwise and in
addition, (ii) the Seller shall be entitled to its rights under the Escrow
Agreement; PROVIDED, HOWEVER, that if the Sellers fail to close the transactions
contemplated hereunder, in addition to any other rights and remedies the
Purchaser may have at law or in equity, the Sellers shall pay to the Purchaser
cash, by wire transfer of Federal funds to a bank and for an account to be
designated by the Purchaser, in the amount of $350,000, which amount shall be a
credit against any damages in excess of such amount to which the Purchaser may
be entitled; PROVIDED, HOWEVER, that if the Purchaser fails to seek or prove at
least $350,000 in damages as a result of any Seller's failure to close the
transactions contemplated by this Agreement, such $350,000 payment shall
constitute liquidated damages and shall be the sole property of the Purchaser.
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ARTICLE VII
Indemnification
7.1 Indemnification by the Sellers. The Sellers jointly and
severally (but severally and not jointly, to the extent set forth in Section
2.1) agree to indemnify, defend and hold harmless the Purchaser and the Company
(and their respective directors, officers, employees, affiliates, successors and
assigns) (collectively, the "PURCHASER PARTIES") against and hold the Purchaser
Parties harmless from and in respect of any and all losses, liabilities,
damages, deficiencies, costs, expenses (including, without limitation, expenses
of investigation and defense and reasonable fees, disbursements and expenses of
counsel incurred by the Purchaser Parties in any action or proceeding between
the Purchaser Parties and the Sellers or between the Purchaser Parties and any
third party or otherwise), claims, liens or other obligations of any nature
whatsoever (collectively, "LOSSES") (other than Losses to the extent actually
recovered by the Purchaser Parties under any applicable insurance policy carried
by the Company prior to the date of this Agreement), based upon, arising out of,
or otherwise in respect of or which may be incurred by virtue of or result from
(a) the inaccuracy in or breach of any representation, warranty, covenant or
agreement made by or on behalf of the Sellers or the Company in this Agreement
or in any document or instrument delivered at the Closing pursuant hereto, (b)
with out limitation to the Sellers' obligations under clause (a), any liability
or obligation, known or unknown, contingent or otherwise, of the Company or its
Subsidiaries to the extent such liabilities or obligations arise out of or
relate to acts, omissions, events or conditions which occurred or existed prior
to the Closing, except to the
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extent (i) incurred in the ordinary course of business of the Company or VDS
(UK) after September 30, 1996, or (ii) disclosed in this Agreement (including
the Schedules hereto, except for items listed in Schedules 2.1(G), 2.1(I),
2.1(Q) and 2.1(U)), or (c) enforcing the indemnification provided for hereunder.
The Sellers shall have no right to seek contribution from the Company or any of
the Subsidiaries with respect to all or any part of any of the Sellers'
indemnification obligations under this Section 7.1.
7.2 Indemnification by the Purchaser. The Purchaser agrees to
indemnify the Sellers against and hold each Seller harmless from and in respect
of any and all Losses which may be incurred by virtue of or result from (a) the
inaccuracy in or breach of any representation, warranty, covenant or agreement
made by or on behalf of the Purchaser in this Agreement or in any document or
instrument delivered at the Closing pursuant hereto (b) the conduct of the
Company and the Subsidiaries after the Closing or (c) enforcing the
indemnification provided for hereunder.
7.3 ERISA and Contract Supplemental Indemnification by Each
SELLER.
(a) Supplemental ERISA Indemnification. Each Seller, jointly
and severally, agrees to indemnify and hold harmless the Purchaser Parties with
respect to any Losses incurred by any of the Purchaser Parties arising out of or
otherwise in respect of the Company's being affiliated prior to the date hereof,
directly or indirectly, under Code Section 414 or ERISA Section 4001 or any
similar foreign law, with the Sellers, VMRC, the Subsidiaries or any of their
affiliates. In addition, each Seller jointly and severally agrees to indemnify
and hold harmless the
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Purchaser Parties and their Plans with respect to any and all Losses arising out
of or otherwise in respect of any of the Company's ERISA reporting and
disclosure violations. All indemnification obligations in this Section 7.3(a)
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, and shall not be subject to any time or
dollar limitation.
(b) Supplemental Contract Indemnification. Each Seller,
jointly and severally, agrees to indemnify and hold harmless the Purchaser
Parties, from and with respect to any and all Losses incurred by any of the
Purchaser Parties arising out of, or otherwise in respect of, (i) any U.S.
Government disallowance of incurred Direct Contract Costs and/or Indirect Costs,
(ii) any matters under investigation by the Grand Jury referred to on Schedule
2.1(G), regardless of whether any Losses for such matters are incurred as a
result of action by the Grand Jury or any Governmental Body or otherwise, or
(iii) any and all preemptive or similar rights and/or assertions thereof,
including, without limitation, pursuant to Section 651 of the Virginia Stock
Corporation Act, that exist or may exist with respect to the capital stock of
the Company held by the shareholders identified on Schedule 1.2 or previously
held by any and all former shareholders of the Company.
All indemnification obligations in this Section 7.3(b) shall survive
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and in the case of clauses (ii) and (iii)
shall not be subject to any time or dollar limitation.
7.4 Survival of Representations and Warranties of the Sellers.
Notwithstanding any right of the Purchaser fully to investigate the affairs of
the
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Company and the Subsidiaries and notwithstanding any knowledge of facts
determined or determinable by the Purchaser pursuant to such investigation or
right of inves tigation, the Purchaser has the right to rely fully upon the
representations and warranties of each of the Sellers contained in this
Agreement. All representations and warranties of the parties hereto contained in
this Agreement shall survive the execution and delivery hereof and the Closing
hereunder, and, except for the repre sentations and warranties made in Sections
2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M), the last sentence of 2.1(P), 2.1(Q),
2.1(R), 2.2(A) and 2.2(B) which shall survive until the expiration of the
applicable statute of limitations with respect to any claim arising from any
inaccuracy or breach thereof, and except as otherwise specifically provided in
this Agreement, (i) shall thereafter terminate and expire on April 30, 1999,
with respect to any General Claim (as hereinafter defined) based upon, arising
out of or otherwise in respect of any fact, circumstance, action or proceeding
of which the party asserting such claim shall have given no notice on or prior
to April 30, 1999, to the party against which such General Claim is asserted,
(ii) with respect to any Tax Claim (as herein defined), on the later of (a) the
date upon which the liability to which any such Tax Claim may relate is barred
by all applicable statutes of limitation and (b) the date upon which any claim
for refund or credit related to such Tax Claim is barred by all applicable
statutes of limitations and (iii) with respect to any Environmental Claim (as
herein defined), on the tenth anniversary of the Closing Date. As used in this
Agreement, the following terms have the following meanings: (i) "GENERAL CLAIM"
means any claim (other than a Tax Claim or an Environmental Claim) based upon,
arising out of or otherwise in respect of any
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inaccuracy in or any breach of any representation or warranty of any Seller
contained in this Agreement, (ii) "TAX CLAIM" means any claim based upon,
arising out of or otherwise in respect of any inaccuracy in or any breach of any
representation or warranty of any Seller contained in this Agreement related to
Taxes or any Plan (as defined in Section 2.1(M) hereof) and (iii) "ENVIRONMENTAL
CLAIM" means any claim based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any representation or warranty of any Seller
contained in this Agreement concerning Environmental Law or principles of common
law relating to pollution, protection of the environment or health and safety.
Except as otherwise expressly provided herein, the covenants and agreements
contained in this Agreement shall survive the execution and delivery hereof and
the consummation of the transactions contemplated hereby.
7.5 Certain Limitations on Indemnification Obligations.
(a) The Purchaser shall not be entitled to receive any
indemnification payments under Section 7.1, except those based upon, arising out
of or otherwise in respect of Sections 1.1, 1.3, 1.5, 1.6, 2.1(A), 2.1(B),
2.1(C), 2.1(D), 2.1(M), 2.1(Q), Article III, Article V and Section 7.3 (the
"BASKET EXCLUSIONS"), until the aggregate indemnification payments, exclusive of
the Basket Exclusions, equal $125,000 (the "BASKET AMOUNT"), whereupon the
Purchaser shall be entitled to receive in full indemnity payments in excess of
the Basket Amount; PROVIDED, HOWEVER, that solely for purposes of determining
whether the amount of the Sellers' indemnification obligations exceed $125,000
in the aggregate, a breach of the Sellers' representations or warranties (other
than the representations and warranties contained
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in Sections 2.1(F) (absence of certain changes or events) and 2.1(R)(a)
(Additional Representations)) shall be determined without regard to any
limitation or qualification as to materiality set forth in such representation
or warranty. Any amount, paid to the Purchaser out of the Indemnification Escrow
Fund shall not be included in determining whether the Basket Amount has been
reached.
(b) The Purchaser shall be entitled to receive any
indemnification payments in respect of the Basket Exclusions without regard to
the individual or aggregate amounts thereof and without regard to whether the
aggregate of all other indemnification payments shall have exceeded, in the
aggregate, the Basket Amount.
(c) The maximum amount of indemnification payments under
Section 7.1 with respect to any breach of a representation or warranty,
excluding those based upon, arising out of or otherwise in respect of Sections
2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M) or 2.1(Q) and amounts paid to the
Purchaser under the Escrow Agreement, shall not exceed $5,000,000. The amount of
indemnification payments based upon, arising out of or otherwise in respect of
breaches of Sections 2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M) or 2.1(Q) shall not
exceed the Purchase Price.
(d) The indemnification obligations of the parties under
Section 7.1 and 7.2 shall terminate on April 30, 1999, except with respect to
any claims for indemnification as to which an indemnified person shall have
given an indemnifying person written notice setting forth its claim with
reasonable specificity (in contradistinction to generalized allegations) as to
the nature thereof on or prior to April 30, 1999; PROVIDED, HOWEVER, that the
indemnification obligations of the parties
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under Section 7.1 and 7.2 with respect to Losses that may be incurred by virtue
of or result from (i) the inaccuracy or breach of any representation or warranty
made in Section 2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M), the last sentence of
2.1(P), 2.1(Q), 2.1(R) or 2.2(A) or 2.2(B), or (ii) the audit of any U.S.
government contract with respect to services performed or data submitted on or
before the Closing Date, or (iii) the breach of any covenant or agreement made
in this Agreement, or (iv) any claim based upon, arising out or otherwise
related to any event, condition, occurrence or circumstance occurring on or
prior to the Closing Date that is insured against under any insurance policy or
arrangement carried by or on behalf of the Company prior to the Closing (or any
renewal or extension thereof), shall in each case survive until the expiration
of the applicable statutes of limitations with respect to each such item, or (v)
any Tax Claim, shall survive until the later of (a) the date upon which the
liability to which any such Tax Claim may relate is barred by all applicable
statutes of limitation and (b) the date upon which any claim for refund or
credit related to such Tax Claim is barred by all applicable statutes of
limitations, or (vi) any Environmental Claim, shall survive until the tenth
anniversary of the Closing Date.
7.6 Defense of Claims. In the case of any claim for indemnification
under Section 7.1, 7.2 or 7.3 arising from a claim of a third party, an
indemnified party shall give prompt written notice to the indemnifying party of
any claim, suit or demand of which such indemnified party has knowledge and as
to which it may request indemnification hereunder. The failure to give such
notice shall not, however, relieve the indemnifying party of its indemnification
obligations except to the extent that the indemnifying party is actually harmed
thereby. The indemnifying
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party shall have the right to defend and to direct the defense against any such
claim, suit or demand, in its name and at its expense, and with counsel selected
by the indemnifying party unless such claim, suit or demand seeks an injunction
or other equitable relief against the indemnified party; PROVIDED, HOWEVER, the
indemnifying party shall not have the right to defend or direct the defense of
any such claim, suit or demand if it contests, in whole or in part, its
indemnification obligations therefor. If the indemnifying party elects to
compromise or defend such claim, it shall within 30 days (or sooner, if the
nature of the claim so requires) notify the indemnified party of its intent to
do so, and the indemnified party shall, at the expense of the indemnifying
party, cooperate in the defense of such claim, suit or demand. If the
indemnifying party elects not to compromise or defend such claim, fails to
notify the indemnified party of its election as herein provided or contests its
obligation to indemnify under this Agreement, the indemnified party may pay,
compromise or defend such claim. Except as set forth in the immediately
preceding sentence, the indemnifying party shall have no indemnification
obligations with respect to any such claim, suit or demand which shall be
settled by the indemnified party without the prior written consent of the
indemnifying party (which consent shall not be unreasonably withheld); PROVIDED,
HOWEVER, that notwithstanding the foregoing, the indemnified party shall not be
required to refrain from paying any claim which has matured by a court judgment
or decree, unless an appeal is duly taken therefrom and exercise thereof has
been stayed, nor shall it be required to refrain from paying any claim where the
delay in paying such claim would result in the foreclosure of a lien upon any of
the property or assets then held by the indemnified party or where any
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delay in payment would cause the indemnified party material economic loss. The
indemnifying party's right to direct the defense shall include the right to
compromise or enter into an agreement settling any claim by a third party;
PROVIDED that no such compromise or settlement shall obligate the indemnified
party to agree to any settlement which requires the taking of any action by the
indemnified party other than the delivery of a release. Notwithstanding the
indemnifying party's right to compromise or settle in accordance with the
immediately preceding sentence, the indemnifying party may not settle or
compromise any claim over the objection of the other; provided, however, that
consent to settlement or compromise shall not be unreasonably withheld. The
indemnified party shall have the right to participate in the defense of any
claim, suit or demand with counsel selected by it subject to the indemnifying
party's right to direct the defense. The fees and disbursements of such counsel
shall be at the expense of the indemnified party; PROVIDED, HOWEVER, that, in
the case of any claim, suit or demand which seeks injunctive or other equitable
relief against the indemnified party as to which the indemnifying party shall
not in fact have employed counsel to assume the defense of such claim, suit or
demand, the fees and disbursements of such counsel shall be at the expense of
the indemnifying party.
7.7 Non-Third Party Claims. Any claim which does not result in a
third party claim shall be asserted by a written notice to the other party or
parties. The recipient of such notice shall have a period of thirty days after
receipt of such notice within which to respond thereto. If the recipient does
not respond within such thirty days, the recipient shall be deemed to have
accepted responsibility for the Losses set forth in such notice and shall have
no further right to contest the validity of
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such notice. If the recipient responds within such thirty days after the receipt
of the notice and rejects such claim in whole or in part, the party delivering
shall be free to pursue such remedies as may be available to it under contract
or applicable law.
7.8 Set-off Rights. Each of the Sellers agrees that the Purchaser
shall have the right, but not the obligation, to set-off against its payment
obligations under Section 1.6 the full amount of any Losses required to be paid
by such Seller pursuant to Section 7.1 or 7.3 if such Losses are not otherwise
paid within 30 days after the Purchaser has requested payment. If the Purchaser
elects to exercise its set-off rights hereunder against any payment due to the
Sellers under Section 1.6, it will give to the Sellers written notice of such
election which includes the amount to be set-off, and upon giving of such notice
the amount of cash payable by the Purchaser to the Sellers under Sections
1.6(e), 1.6(f) and/or 1.6(g), as the case may be, shall automatically be reduced
by the amount set forth in such notice. In the event there is a final
determination by a court of competent jurisdiction that the Purchaser was not
entitled to indemnification under this Article 7 with respect to the set-off
amount, the Purchaser shall promptly thereafter repay to the Sellers all such
amounts which are so determined to have been incorrectly set-off plus interest
thereon at a rate per annum which is equal to the prime rate, as announced from
time to time by Mellon Bank, N.A., on the basis of a 366-day year and actual
days elapsed and which shall accrue from the date the Purchaser exercised its
right of set-off hereunder to the date of such repayment. For purposes of this
Section 7.8, a determination shall be final if any and all appeals therefrom
shall have been resolved or if 30 days shall have passed from
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the rendering of such determination (or of any determination on appeal
therefrom) and no party shall have commenced any such appeal therefrom.
ARTICLE VIII
Miscellaneous
8.1 Certain Definitions. As used herein, the following terms shall
have the meanings herein specified (to be equally applicable to both the
singular and plural forms of the terms defined):
"Business Day" means any day other than Saturday or Sunday or
any other day on which banks in the Commonwealth of Virginia are permitted or
obligated to be closed for business.
"Cash" means, as of the date of determination, the difference
of (x) the aggregate amount of cash and cash equivalents held as of 10:00 a.m.
(New York City time) in the bank accounts, including money market accounts, of
the Company, as verified by such banks to the Purchaser by telephone, MINUS (y)
the aggregate balance of all outstanding checks written against such accounts.
"Direct Contract Costs" means, with respect to any period, the
aggregate amounts of labor, fringe and other direct expenses, including expenses
for materials, subcontracts, consultants and travel incurred by the Company and
the Consolidated Subsidiaries in providing services under U.S. and/or foreign
government contracts and shall exclude general and administrative expenses.
"Gross Profit" means, with respect to any period, the
difference of (x) Revenue, MINUS (y) Direct Contract Costs.
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"Indirect Cost" means any cost that is not directly identified
with a single final cost objective, but is identified with two or more final
cost objectives, or with at least one intermediate cost objective, and includes,
but is not limited to, labor, fringe benefits, facility and occupancy costs,
training, incentives, outside purchased services and travel.
"Revenue" means, with respect to any period, the aggregate
amount of Cash paid and/or accounts receivable (whether billed, unbilled or
retained) arising from U.S. and/or foreign government contracts.
"Tax" or "Taxes" means all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all net income,
franchise, profits, gross receipts, capital, sales, use, ad valorem, value
added, transfer, transfer gains, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, real or personal property, and estimated taxes, customs duties,
fees, assessments and charges of any kind whatsoever, together with any interest
and any penalties, fines, additions to tax or additional amounts thereon,
imposed by any taxing authority (federal, state, local or foreign) and shall
include any transferee liability in respect of Taxes.
"Tax Return" means all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect to
any Taxes.
"Working Capital" means the difference of (x) all current
assets of the Company and the Subsidiaries, MINUS (y) the current liabilities of
the Company and the Subsidiaries, determined in accordance with GAAP applied on
a consistent basis.
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8.2 Sellers' Representative.
(i) Each Seller hereby irrevocably appoints Joseph J. Cane to
act as such Seller's attorney-in-fact and representative (the "SELLERS'
REPRESENTATIVE"), to do any and all things and to execute any and all documents,
in such Seller's name, place and stead, in any way which such Seller could do if
personally present, in connection with this Agreement, the Escrow Agreement and
the transactions contemplated hereby and thereby, including to accept on such
Seller's behalf any amount payable to such Seller under this Agreement, the
Escrow Agreement, or to amend, cancel or extend, or waive the terms of, this
Agreement, or the Escrow Agreement. The Purchaser shall be entitled to rely, as
being binding upon such Seller, upon any document or other paper believed by the
Purchaser to be genuine and correct and to have been signed by the Sellers'
Representative, and the Purchaser shall not be liable to any Seller for any
action taken or omitted to be taken by the Purchaser in such reliance. The
Sellers' Representative shall have the sole and exclusive right on behalf of the
Sellers to take any action or provide any waiver pursuant to Section 4.1, 8.2 or
8.3 or Article VI or VII.
(ii) The Sellers' Representative may resign at any time by
giving written notice thereof to the Purchaser and the Sellers and may be
removed at any time with or without cause by the Sellers who held a majority of
the outstanding capital Shares at the time of the Closing. Upon any such
resignation or removal, the Sellers shall have the right to appoint, with the
consent of the Purchaser, a successor Sellers' Representative. If no successor
Sellers' Representative shall have been so appointed by the Sellers, and shall
have accepted such appointment, within 30 days
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after the retiring Sellers' Representative's giving of notice of resignation or
the Sellers' removal of the retiring Sellers' Representative, then the retiring
Sellers' Representative may, on behalf of the Sellers, appoint a successor
Sellers' Representative, which shall be acceptable to the Purchaser (which shall
not unreasonably withhold its approval). Upon the acceptance of any appointment
as Sellers' Representative thereunder by a successor Sellers' Representative,
such successor Sellers' Representative shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Sellers' Representative, and the retiring Sellers' Representative shall be
discharged from its duties and obligations under this Agreement. After any
retiring Sellers' Representative's resignation or removal hereunder as Sellers'
Representative, the provisions of this Section 8.2 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Sellers'
Representative.
(iii) The grant of authority provided for in this Section 8.2:
(a) is coupled with an interest and shall be irrevocable and survive the death,
incompetency, bankruptcy or liquidation of any Seller and shall be binding on
any successor thereto; and (b) shall survive the delivery of an assignment by a
Seller of the whole or any fraction of its interest in any payment due to it
under this Agreement.
8.3 Expenses. Unless otherwise specifically provided herein, the
parties shall bear their own respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and consummation of the
transactions contemplated hereby. Notwithstanding the foregoing, the Purchaser
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agrees that the Company may pay Keller Bruner & Company, P.C. accounting
expenses up to $20,000 and Holland & Knight LLP legal expenses up to $150,000,
it being agreed by the parties hereto that any accounting, legal and/or other
expenses of the Company, any of the Subsidiaries and/or any of the Sellers in
excess of such specified amounts shall be paid solely by the Sellers from their
respective proceeds of the transaction contemplated hereunder.
8.4 Waivers and Amendments; Non-Contractual Remedies; PRESERVATION
OF REMEDIES. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the Purchaser and the Sellers or the Sellers' Representative or, in
the case of a waiver, by or on behalf of the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof. Nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in respect of any
inaccuracy in or breach of any representation, warranty, covenant or agreement
contained in this Agreement or any document delivered pursuant to this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other
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representation, warranty, covenant or agreement contained in this Agreement or
any document delivered pursuant to this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
8.5 Public Disclosure. Each of the parties to this Agreement hereby
agrees with the other party that, except as may be required to comply with the
requirements of applicable law, no press release or similar public announcement
or communication will be made or caused to be made concerning the execution or
performance of this Agreement or the transactions contemplated hereunder unless
specifically approved in advance by both parties, such approval not to be
unreasonably withheld, conditioned or delayed. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other parties and shall
give the other parties an opportunity to comment thereon.
8.6 Mediation. Each party agrees that, at least thirty (30) days
prior to bringing any legal action to enforce any rights, or seek damages
hereunder, such party will notify the other parties that it is requesting
non-binding mediation (setting forth in reasonable detail the nature of the
dispute to be mediated) and the parties shall within ten (10) days of such
notice commence good faith mediation with respect thereto for a period of not
less than twenty (20) days. This Section 8.6 shall not apply to disputes under
any Non-Compete and Non-Disclosure Agreement or the giving of notice or delivery
of any certificate under the Escrow Agreement. The mediation shall take place
under the auspices of the American Arbitration Association in Fairfax County,
Commonwealth of Virginia.
<PAGE>
88
8.7 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND
IN ALL RESPECTS SHALL BE INTER PRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND EACH SELLER AND THE PURCHASER
IRREVOCABLY AGREE THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT
LOCATED IN NEW YORK COUNTY, STATE OF NEW YORK OR ANY STATE COURT LOCATED IN
FAIRFAX COUNTY, COMMONWEALTH OF VIRGINIA OR ANY FEDERAL COURT LOCATED IN THE
EASTERN DISTRICT OF VIRGINIA AND EACH PARTY AGREES NOT TO ASSERT, BY WAY OF
MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH ACTION, SUIT OR PROCEEDING, ANY
CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURT, THAT
ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION,
SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
ACTION, SUIT OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT
MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, AND HEREBY WAIVES ANY
OFFSETS OR COUNTERCLAIMS IN ANY SUCH ACTION, SUIT OR PROCEEDING. ANY AND ALL
SERVICE OF PROCESS AND ANY OTHER
<PAGE>
89
NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST ANY
PARTY IF GIVEN PERSONALLY OR BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, OR BY ANY OTHER MEANS OF MAIL THAT REQUIRES A SIGNED RECEIPT, POSTAGE
PREPAID. NOTHING HEREIN CONTAINED SHALL BE DEEMED TO AFFECT THE RIGHT OF ANY
PARTY TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OTHER PARTY IN ANY JURISDICTION
OTHER THAN NEW YORK OR VIRGINIA.
8.8 Notices. Any notices or other communications required under this
Agreement shall be in writing and be effective upon delivery if given by hand
delivery or facsimile transmission or on the next day after given if delivered
by overnight courier and shall be given at the addresses or facsimile numbers
set forth below, with copies provided as follows:
(a) if to the Sellers, to the Sellers' Representative
addressed to:
Joseph J. Cane
3 Seahawk Lane
Ocean View, DE 19970
with a copy to:
Holland & Knight, LLP
2100 Pennsylvania Avenue, Suite 400
Washington, D.C. 20037-3203
Attn: William J. Mutryn, Esq.
<PAGE>
90
(b) if to the Purchaser, addressed to:
Anteon Corporation
3211 Jermantown Road
Fairfax, VA 22030-2801
Attn: Curtis L. Schehr, Esq.
Vice President and General Counsel
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attn: Carl L. Reisner, Esq.
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties to this Agreement in the manner herein
proved.
8.9 SECTION HEADINGS. The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
8.11 ASSIGNMENTS. This Agreement may not be assigned, by operation
of law or otherwise, except that the Purchaser may assign its rights under this
Agreement to its financing sources upon delivery of notice of the identity of
such assignee to the Sellers' Representative. This Agreement shall be binding
upon and inure to the benefit of successors and legal representatives of the
parties hereto.
8.12 ENTIRE AGREEMENT, ENFORCEABILITY AND MISCELLANEOUS. This
Agreement including the Exhibits and Schedules attached hereto (a) constitutes
the entire agreement among the parties with respect to the transactions
contemplated
<PAGE>
91
hereby and supersedes all prior agreements and understandings, both written and
oral, among the parties, with respect to the subject matter hereof; (b) shall be
binding upon, and is solely for the benefit of, each of the parties herein and
nothing in this Agreement is intended to confer upon any other persons any
rights or remedies of any nature whatsoever hereunder or by reason of this
Agreement; and (c) in case any provision in this Agreement shall be or shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. The parties hereto have made no representations or warranties
with respect to the transactions contemplated herein, express or implied,
written or oral, except for the representations and warranties made in Article
II of this Agreement.
8.13 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
will not be construed for or against either party. A reference to a Section or
an Exhibit or Schedule will mean a Section in, or Exhibits or Schedule to, this
Agreement unless otherwise explicitly set forth.
<PAGE>
92
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
ANTEON CORPORATION
By: /s/ JOSEPH M. KAMPF
--------------------------------------------
Name: Joseph M. Kampf
Title: President and Chief Executive Officer
VECTOR DATA SYSTEMS, INC.
By: /s/ BARRIE A. GILLIS
--------------------------------------------
Name: Barrie A. Gillis
Title:President
<PAGE>
93
SELLERS
/s/ SCOTT HILTERBRICK, ATTORNEY IN FACT
--------------------------------------------
Name: James Bardine
By: Scott Hilterbrick
attorney in fact
/s/ MILIFERD E. BARNETT
--------------------------------------------
Name: Milferd E. Barnett
/s/ STANLEY E. GRAVES, ATTORNEY IN FACT
Name: Maurice Bedford
By: Stanley E. Graves
attorney in fact
/s/ SCOTT HILTERBRICK, ATTORNEY IN FACT
--------------------------------------------
Name: James Brown
By: Scott Hilterbrick
attorney in fact
/s/ STANLEY E. GRAVES, ATTORNEY IN FACT
--------------------------------------------
Name: Robert L. Buran
By: Stanley E. Graves
attorney in fact
/s/ JOSEPH J. CANE
--------------------------------------------
Name: Joseph J. Cane, individually and
as Sellers' Representative
/s/ RONALD CRABB
--------------------------------------------
Name: Ronald Crabb
/s/ STANLEY E. GRAVES, ATTORNEY IN FACT
--------------------------------------------
Name: Lisa M. Gallina
By: Stanley E. Graves
attorney in fact
<PAGE>
94
/s/ BARRIE A. GILLIS
--------------------------------------------
Name: Barrie A. Gillis
/s/ STANLEY E. GRAVES
--------------------------------------------
Name: Stanley E. Graves, in his
individual capacity
<PAGE>
95
STANLEY E. GRAVES CHARITABLE
REMAINDER UNITRUST
By: /s/ STANLEY E. GRAVES
--------------------------------------------
Stanley E. Graves, as Co-Trustee
By: /s/ BARRIE A. GILLIS, ATTORNEY IN FACT
--------------------------------------------
Pamela C. Graves, Co-Trustee
By: Barrie A. Gillis
attorney in fact
/s/ LEONARD H. PERROOTS, ATTORNEY IN FACT
-----------------------------------------------
Name: Robert Hansinger
By: Leonard H. Perroots
attorney in fact
/s/ SCOTT HILTERBRICK
-----------------------------------------------
Name: Scott Hilterbrick
/s/ STANLEY E. GRAVES, ATTORNEY IN FACT
-----------------------------------------------
Name: Joseph Hollick
By: Stanley E. Graves
attorney in fact
/s/ LEONARD H. PERROOTS, ATTORNEY IN FACT
-----------------------------------------------
Name: Donald Mayes
By: Leonard H. Perroots
attorney in fact
/s/ LEONARD H. PERROOTS, ATTORNEY IN FACT
-----------------------------------------------
Name: Tofie Owen
By: Leonard H. Perroots
attorney in fact
/s/ LEONARD H. PERROOTS
-----------------------------------------------
Name: Leonard H. Perroots
<PAGE>
96
/s/ BARRIE A. GILLIS, ATTORNEY IN FACT
-----------------------------------------------
Name: J. Christopher Phelps
By: Barrie A. Gillis
attorney in fact
/s/ THOMAS G. RICHARDS
-----------------------------------------------
Name: Thomas G. Richards
/s/ RICHARD H. ROBEY
-----------------------------------------------
Name: Richard H. Robey
/s/ BARRIE A. GILLIS, ATTORNEY IN FACT
-----------------------------------------------
Name: Theodore K. Rulf
By: Barrie A. Gillis
attorney in fact
ESTATE OF MARY THROWE
By: /s/ BARRIE A. GILLIS, ATTORNEY IN FACT
-------------------------------------------
Name: Barrie A. Gillis
Personal Representative
/s/ LEONARD H. PERROOTS, ATTORNEY IN FACT
-----------------------------------------------
Name: John Woodbury
By: Leonard H. Perroots
attorney in fact
<PAGE>
Exhibit 10.2
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
ANTEON CORPORATION,
TM ACQUISITION CORP.,
TECHMATICS, INC.,
CERTAIN SHAREHOLDERS OF TECHMATICS, INC.,
SIGNATORIES HERETO,
and
JOSEPH MAURELLI,
individually and as Sellers' Representative.
Dated May 13, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER.......................................................3
1.1 The Merger..............................................3
1.2 Closing; Effective Time.................................3
1.3 Articles of Incorporation...............................4
1.4 Bylaws..................................................4
1.5 Directors and Officers..................................4
ARTICLE II
CONVERSION OF SECURITIES FOR CASH................................5
2.1 Purchase Price..........................................5
2.2 Price Per Share.........................................5
2.3 Payment.................................................6
2.4 Options.................................................7
2.5 Merger Sub Common Stock.................................8
2.6 Exchange of Common Stock and Option Payments............9
2.7 Withholding: Net Payments.............................11
2.8 Determination and Payment of Contingent Consideration..11
ARTICLE III
REPRESENTATIONS AND WARRANTIES..................................16
3.1 Representations and Warranties of the Company and the
Sellers................................................16
(A) Organization and Qualification of the Company......17
(B) Authority to Execute and Perform Agreement.........18
(C) Capital Stock......................................20
(D) Vote Required......................................21
(E) Financial Statements...............................22
(F) Absence of Certain Changes or Events...............23
(G) Litigation and Liabilities.........................26
(H) Title to Properties; Absence of Liens, etc.........26
(I) Licenses and Registrations; Compliance with
Laws, etc..........................................27
(J) Intangible Property................................28
(K) Non-Contravention..................................29
(L) Consent and Approvals..............................31
(M) Employee Benefit Plans; ERISA......................32
(N) Insurance Policies.................................36
(O) Agreements.........................................37
(P) Validity of Agreements.............................39
(Q) Taxes..............................................41
<PAGE>
Page
----
(R) Additional Representations.........................45
(S) Accounts and Notes Receivable......................47
(T) Potential Conflicts of Interest....................47
(U) Liabilities........................................48
(V) Real Estate........................................49
(W) Labor Matters......................................51
(X) Management Reserves................................51
(Y) Working Capital and Outstanding Debt...............52
3.2 Representations and Warranties of the Parent and the
Merger Sub.............................................52
(A) Organization.......................................52
(B) Authority to Execute and Perform Agreement.........52
(C) Consents and Approvals.............................53
(D) Non-Contravention..................................53
(E) Parent Material Adverse Effect.....................54
(F) Parent Litigation..................................55
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES............................55
4.1 Taxes; Section 338(h)(10) Election.....................55
4.2 Tax Return Filing......................................58
4.3 Further Assurances.....................................59
4.4 Access to Records......................................59
4.5 Preservation of Records................................61
4.6 Confidentiality........................................62
4.7 Efforts; Consents......................................63
4.8 Return of Information and Confidentiality..............63
4.9 Ordinary Course of Business............................64
4.10 Insurance Proceeds, Litigation Rights..................64
4.11 Benefit Plans and Employee Matters.....................65
4.12 Preservation of Business...............................67
4.13 Litigation.............................................67
4.14 Agreements.............................................68
4.15 Continued Effectiveness of Representations and
Warranties.............................................68
4.16 Satisfaction of Conditions Precedent...................69
4.17 Exclusivity............................................69
4.18 Allocation of Certain Expenses of Parent...............70
4.19 Certain Covenants of the Parent........................70
4.20 Shareholder Approval...................................73
ARTICLE V
CONDITIONS TO CLOSING...........................................74
5.1 Conditions to Obligations of the Company...............74
(A) Regulatory Authorizations..........................74
ii
<PAGE>
Page
----
(B) Representations and Warranties; Covenants..........74
(C) Certificates.......................................75
(D) Opinions of Counsel to the Parent and the Merger
Sub................................................75
(E) Expiration of Required Notice Period...............75
5.2 Conditions to Obligations of the Parent and the
Merger Sub.............................................75
(A) Regulatory and other Authorizations................75
(B) Representations and Warranties; Covenants..........76
(C) Governmental Permits and Approvals.................76
(D) Third Party Consents...............................76
(E) Opinion of Counsel to the Company and the Sellers..77
(F) Non-Competition....................................77
(G) Certificate........................................77
(H) Payoff Letter......................................77
(I) VEBA Funding.......................................77
ARTICLE VI
FEES RELATING TO THIS TRANSACTION...............................78
ARTICLE VII
TERMINATION.....................................................79
7.1 Termination............................................79
7.2 Effect of Termination; Expenses........................80
ARTICLE VIII
INDEMNIFICATION.................................................81
8.1 Indemnification by the Sellers.........................81
8.2 Indemnification by the Parent and the Merger Sub.......82
8.3 ERISA, Tax and Contract Supplemental Indemnification
by Each Seller.........................................82
8.4 Survival of Representations and Warranties of the
Sellers................................................84
8.5 Certain Limitations on Indemnification Obligations.....86
8.6 Defense of Claims......................................88
8.7 Non-Third Party Claims.................................90
8.8 Set-off Rights.........................................90
ARTICLE IX
MISCELLANEOUS...................................................91
9.1 Certain Definitions....................................91
9.2 Sellers' Representative................................96
9.3 Expenses...............................................98
iii
<PAGE>
Page
----
9.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies...............................99
9.5 Public Disclosure.....................................100
9.6 GOVERNING LAW. ......................................100
9.7 Notices...............................................102
9.8 Section Headings......................................103
9.9 Counterparts..........................................103
9.10 Assignments...........................................103
9.11 Entire Agreement, Enforceability and Miscellaneous....103
Schedules
Schedule 2.2 Price Per Share Illustration
Schedule 2.3(c) Deferred Tax Liability Calculation
Schedule 3.1(A) Organization and Qualification of the Company
Schedule 3.1(C) Capitalization
Schedule 3.1(F) Absence of Certain Changes or Events
Schedule 3.1(G) Litigation and Liabilities
Schedule 3.1(H) Permitted Liens
Schedule 3.1(I) Compliance with Laws
Schedule 3.1(J) Intangible Property
Schedule 3.1(K) Non-Contravention
Schedule 3.1(L) Consents and Approvals
Schedule 3.1(M) Employee Benefit Plans; ERISA
Schedule 3.1(O) Agreements
Schedule 3.1(P) Validity of Agreements
Schedule 3.1(Q) Groups
Schedule 3.1(R) Additional Representations
Schedule 3.1(T) Potential Conflicts of Interest
Schedule 3.1(U) Liabilities
Schedule 3.1(V) Real Property
Schedule 6.0 Certain Fees Relating to this Transaction
Exhibits
Exhibit I Articles of Merger
Exhibit II Subordinated Promissory Note
Exhibit III Option Cancellation Agreement
Exhibit IV Form of Opinion of Counsel to the Parent
Exhibit V Form of Opinion of Counsel to the Company and the Sellers
Exhibit VI Form of Non-Compete and Non-Disclosure Agreement
Exhibit VII Certain Level of Effort Contracts
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated May 13,
1998, by and among Anteon Corporation, a Virginia corporation (the "PARENT"), TM
Acquisition Corp., a Virginia corporation and a wholly owned subsidiary of the
Parent (the "MERGER SUB"), TECHMATICS, Inc., a Virginia corporation (the
"COMPANY"), each of the individuals designated on the signature pages hereof as
a Seller (each a "SELLER" and collectively, the "SELLERS") and Joseph Maurelli,
as a Seller and in his capacity as the representative of the Sellers (the
"SELLERS' REPRESENTATIVE"). The Merger Sub and the Company are sometimes
collectively referred to herein as the "CONSTITUENT CORPORATIONS."
W I T N E S S E T H :
WHEREAS, the respective boards of directors of the Parent, the
Merger Sub and the Company have approved this Agreement pursuant to which, among
other things, the Merger Sub will be merged with and into the Company (the
"MERGER") on the terms and conditions contained herein and in accordance with
the Virginia Stock Corporation Act (the "VSCA");
WHEREAS, Sellers are hereby consenting to the adoption of this
Agreement and the Merger and are agreeing to vote for and approve this Agreement
and the Merger in accordance with the articles of incorporation and bylaws of
the Company and the VSCA;
WHEREAS, the execution of this Agreement by the Sellers, the
execution of a unanimous written consent by all holders of the Company's Class A
Common Stock delivered to the Secretary of the Company on April 17, 1998 (the
<PAGE>
2
"UNANIMOUS WRITTEN CONSENT") and the execution of a second unanimous consent by
all holders of the Company's Class A Common Stock delivered to the Secretary of
the Company on the date hereof and to be effective at the Effective Time (the
"EFFECTIVE TIME UNANIMOUS CONSENT"), constitute the only actions necessary to be
taken by shareholders of the Company ("SHAREHOLDERS") in order to adopt this
Agreement under the Company's articles of incorporation and bylaws and the VSCA;
WHEREAS, the Sellers are the beneficial and record owners of 100%
of the issued and outstanding shares of the Company's Class A Common Stock,
60.5% of the Company's Class A Nonvoting Common Stock, and 87.7% of the combined
Common Stock of the Company (the Class A Common Stock and the Class A Nonvoting
Common Stock are referred to together as the "COMMON STOCK");
WHEREAS, the waiting period required for this Merger pursuant to
the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, expired on March 15, 1998; and
WHEREAS, the Parent, the Merger Sub, the Sellers and the Company
desire to make certain representations, warranties, covenants and agreements in
connection with the Merger and to prescribe various conditions to the Merger.
NOW THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
<PAGE>
3
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) and in
accordance with the VSCA, the Merger Sub shall be merged with and into the
Company, which shall be the surviving corporation in the Merger (the "SURVIVING
CORPORATION"). At the Effective Time, the separate existence of the Merger Sub
shall cease and the other effects of the Merger shall be as set forth in Section
13.1-721 of the VSCA.
1.2 Closing; Effective Time. Subject to the provisions of Article
VII, the closing of the Merger (the "CLOSING") shall take place at the offices
of Paul, Weiss, Rifkind, Wharton & Garrison, 1615 L Street, Washington, D.C.
20036- 5694, at 10:00 a.m. Washington, D.C., time on May 29, 1998, or on such
later date thereafter on which each of the conditions set forth in Article V
have been satisfied or waived by the party or parties entitled to the benefit of
such conditions, or at such other place, at such other time or on such other
date as the Parent, the Merger Sub and the Company may mutually agree. The date
on which the Closing actually occurs is hereinafter referred to as the "CLOSING
DATE." At the Closing, the Parent, the Merger Sub and the Company shall cause
the articles of merger (the "ARTICLES OF MERGER") attached hereto as Exhibit I
to be executed and filed with the State Corporation Commission of the
Commonwealth of Virginia (the "COMMISSION") in accordance with the VSCA. The
Merger shall become effective as of the date and time (the "EFFECTIVE TIME") a
certificate of merger is issued by the Commission with
<PAGE>
4
respect to the Merger, unless a later date and time is specified in the Articles
of Merger pursuant to the VSCA.
1.3 Articles of Incorporation. The articles of incorporation of the
Merger Sub, as in effect immediately prior to the Effective Time, shall become,
from and after the Effective Time, the articles of incorporation of the
Surviving Corporation, until thereafter altered, amended or repealed as provided
therein and in accordance with applicable law, except that the name of the
Surviving Corporation shall be "TECHMATICS, Inc."
1.4 Bylaws. The bylaws of the Merger Sub, as in effect immediately
prior to the Effective Time, shall become, from and after the Effective time,
the by-laws of the Surviving Corporation, until thereafter altered, amended or
repealed as provided therein and in accordance with applicable law.
1.5 Directors and Officers. The directors and officers of the
Merger Sub immediately prior to the Effective Time shall become, from and after
the Effective Time, the directors and officers of the Surviving Corporation,
until their respective successors are duly elected or appointed and qualify or
their earlier resignation or removal. In addition, Joseph Maurelli shall be a
director of the Surviving Corporation following the Effective Time for a period
of not less than two years following the Effective Time so long as he remains an
executive officer of the Surviving Corporation and Michael B. Maraghy shall be a
director of the Surviving Corporation immediately following the Effective Time.
<PAGE>
5
ARTICLE II
CONVERSION OF SECURITIES FOR CASH
2.1 Purchase Price. The Parent agrees to pay or cause to be paid,
an aggregate consideration of (a) Thirty-Seven Million Dollars ($37,000,000)
(the "AGGREGATE CONSIDERATION"), plus (b) any amounts payable under Sections
2.3(b) and (c), plus (c) any sum or sums due hereunder pursuant to Section 2.8,
subject to any right of set-off the Parent may have pursuant to Section 8.8 (the
"CONTINGENT CONSIDERATION") (the Aggregate Consideration and the Contingent
Consideration being hereinafter referred to collectively as the "PURCHASE
PRICE"), in order to acquire all of the shares of Common Stock outstanding at
the Effective Time and to cause the rights of Option Holders (as defined in
Section 2.4) to acquire Common Stock to be extinguished as of the Effective
Time. The parties will accomplish the foregoing by means of the Merger and the
amount, timing, and form of consideration to be payable to the Shareholders and
Option Holders and the manner of payment is set forth in this Article II.
2.2 Price Per Share. Each share of Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive, at the times and subject to the other provisions of
this Agreement, a per share amount (the "PER SHARE AMOUNT") equal to the sum of
(1) the quotient obtained by dividing (a) the sum of (i) the Purchase Price
multiplied by a fraction the numerator of which is the number of shares of
Common Stock issued and outstanding immediately prior to the Effective Time
("N") and the denominator of which is the
<PAGE>
6
sum of N PLUS the aggregate number of shares of Common Stock covered by Options
(as defined in Section 2.4) outstanding immediately prior to the Effective Time
("S"), PLUS (ii) the aggregate exercise price of the Options outstanding
immediately prior to the Effective Time ("EP"), by (b) N, PLUS (2) the amounts
payable under Sections 2.3 (b) and (c). Schedule 2.2 sets forth for illustration
an example of the calculations contemplated by Sections 2.2, 2.3 and 2.4.
2.3 Payment. The Per Share Amount shall be paid as follows:
(a) Three days subsequent to the Effective Time, the Parent
shall pay or cause the Surviving Corporation to pay to each Shareholder entitled
to receive a payment under Section 2.2 an amount for each share of Common Stock
held at the Effective Time (the "PER SHARE CLOSING AMOUNT") equal to the
quotient obtained by dividing (a) the sum of (i) Twenty-seven Million Dollars
($27,000,000) multiplied by a fraction the numerator of which is N and the
denominator of which is the sum of N plus S, PLUS (ii) EP multiplied by the
fraction obtained by dividing 27 by 37, by (b) N.
(b) On December 15, 1998, for each share of Common Stock held
by such Shareholder, the Parent shall pay or cause the Surviving Corporation to
pay to each Shareholder entitled to receive a payment under Section 2.2 the
quotient of One Million Dollars ($1,000,000) divided by N, as partial
reimbursement of the estimated Deferred Tax Liability (as defined in Section
9.1) .
(c) On April 1, 1999, the Parent shall pay or cause the
Surviving Corporation to pay to each Shareholder entitled to receive a payment
under Section 2.2, the quotient of Three Million Dollars ($3,000,000) divided by
N for each
<PAGE>
7
share of Common Stock held by such Shareholder, as partial reimbursement of the
estimated Deferred Tax Liability.
(d) At the Closing, the Parent shall deliver to each
Shareholder entitled to receive a payment under Section 2.2, a subordinated
promissory note due May 31, 2000 (the "NOTES"), in substantially the form of
Exhibit II, in principal amount equal to the quotient obtained by dividing (a)
the sum of (i) Ten Million Dollars ($10,000,000) multiplied by a fraction the
numerator of which is N and the denominator of which is the sum of N plus S,
plus (ii) EP multiplied by the fraction obtained by dividing 10 by 37, by (b) N,
for each share of Common Stock held by such Shareholder at the Effective Time.
(e) The Contingent Consideration to be paid pursuant to this
Agreement, if any, shall be paid by the Parent in accordance with the terms of
Section 2.8, subject to any set-off right the Parent may have pursuant to
Section 8.8.
2.4 Options. On or prior to the Closing Date, the Company shall
cause each holder (an "OPTION HOLDER") of an option obligating the Company to
issue any shares of Common Stock (each, an "OPTION") to enter into an agreement
with the Company in the form of Exhibit III providing that each holder of an
Option outstanding immediately prior to the Effective Time, whether or not then
exercisable, shall be entitled to receive in full settlement and cancellation of
such Option, and in return for a waiver of all rights associated with such
Option under the terms of any of the Company's option plans, the following
consideration at the following times:
(a) At the Closing, the Parent shall pay or cause the Merger
Sub to pay to each Person who is an Option Holder at the Effective Time an
amount
<PAGE>
8
in cash for each Option held equal to the remainder of (i) Twenty-seven Million
Dollars ($27,000,000) MULTIPLIED by a fraction the numerator of which is the
number of shares of Common Stock covered by such Option ("OS") and the
denominator of which is the sum of N plus S, MINUS (ii) the exercise price of
such Option ("OEP") MULTIPLIED by OS MULTIPLIED by the fraction obtained by
dividing 27 by 37.
(b) At the Closing, the Parent shall deliver to the Company
for delivery to each Person who is an Option Holder at the Effective Time a Note
in principal amount for each Option held equal to the remainder of (i) Ten
Million Dollars ($10,000,000) MULTIPLIED by a fraction the numerator of which is
OS and the denominator of which is the sum of N plus S, MINUS (ii) OEP
MULTIPLIED by OS MULTIPLIED by the fraction obtained by dividing 10 by 37.
(c) The Contingent Consideration to be paid pursuant to this
Agreement, if any, shall be paid by the Parent in accordance with the terms of
Section 2.8, subject to any set-off right the Parent may have pursuant to
Section 8.8.
If any Option Holder shall fail to enter into an agreement
referred to in the first paragraph of this Section 2.4, then the Company shall
promptly exercise all its rights and give all required notice under its option
plans so that the Option will be accelerated, vested and converted at the
Effective Time into the consideration provided for in this Section 2.4, and the
Closing Date and any termination rights under this Agreement will be tolled for
a reasonable period not to exceed 45 days to permit the Company to take such
actions.
2.5 Merger Sub Common Stock. Each share of common stock of the
Merger Sub issued and outstanding immediately prior to the Effective Time shall,
<PAGE>
9
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of common stock of the Surviving
Corporation.
2.6 Exchange of Common Stock and Option Payments.
(a) Not later than three Business Days prior to the Closing,
the Company shall mail to each Shareholder and to each Option Holder a notice
and, as applicable, a transmittal form and/or an option cancellation and
settlement form (in form and substance reasonably satisfactory to the Parent)
advising such Shareholder and Option Holder of the procedure for delivering
certificates to the Company and effecting payments for Options in accordance
with Sections 2.3 and 2.4. At the Closing, the Company shall deliver to the
Merger Sub all of the certificates that the Company shall have theretofore
received, together with duly executed transmittal forms and option cancellation
and settlement forms received by the Company from the Shareholders and Option
Holders.
Thereafter, each holder of a certificate representing a share
of Common Stock not delivered to the Merger Sub, may surrender to the Surviving
Corporation such certificate together with an executed transmittal form, and
receive from the Surviving Corporation in exchange therefor the payment or
payments called for under Section 2.3, and each Option Holder may deliver an
option cancellation and settlement form and receive from the Surviving
Corporation in exchange therefor the amount payable under Section 2.4, in each
case without interest. Upon surrender of any such certificates, such
certificates shall be canceled. The Surviving Corporation may set off any amount
owed by a Shareholder or Option Holder to the Company or
<PAGE>
10
any of the Subsidiaries immediately prior to the Effective Time against any
payment due under this Agreement.
(b) If the consideration payable for any share of Common Stock
is to be delivered to a person other than the person in whose name the
certificate representing such shares is registered, it shall be a condition of
such delivery that the certificate so surrendered shall be properly endorsed or
accompanied by appropriate stock powers, in either case signed as the name of
the record holder appears on such certificate, and shall otherwise be in proper
form for transfer, and that the person requesting such delivery shall pay to the
Surviving Corporation any transfer or other taxes required by law as a result of
such delivery to a person other than the record holder of the certificate
surrendered, or shall establish to the Surviving Corporation's satisfaction that
such tax has been paid or is not payable.
(c) Any amounts remaining unclaimed by holders of shares of
Common Stock immediately prior to such time as such amounts would otherwise
escheat to or become property of any governmental entity shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation
free and clear of any claims or interest of any Person previously entitled
thereto.
(d) Each Shareholder shall cease at the Effective Time to have
any rights as a Shareholder of the Company or the Surviving Corporation (other
than rights to receive the payments provided for in Section 2.3) and each Option
Holder shall cease to have any rights under the Option Plan or the option
agreements pursuant to which it acquired its Options (other than to receive the
payments provided
<PAGE>
11
for in Section 2.4), and no transfer of shares of the Company's capital stock
shall thereafter be made on the stock transfer books of the Surviving
Corporation.
2.7 Withholding: Net Payments. Notwithstanding anything in this
Agreement to the contrary, any amount paid pursuant to this Agreement or the
Notes to Option Holders, including without limitation the payments to Option
Holders under Section 2.4, or to Shareholders that are not United States
Persons, as defined in Section 7701(a)(30) of the Code (as defined below in
Section 3.1(M)(ii)), shall be net of all applicable federal, state and local
withholding taxes, as determined by the Surviving Corporation and agreed to by
the Sellers' Representative. The Surviving Corporation shall withhold and remit
to the appropriate taxing authority all such withholding taxes due in connection
with the payments made by it, and such remittance shall be deemed a payment of
amounts owed to any person entitled to payment pursuant to this Agreement. Any
payment to non-employee Option Holders shall be at the minimum withholding
amount required by applicable law. Prior to the Effective Time, the Company
shall use its reasonable efforts to take such actions as shall be necessary to
allow for compliance with this Section 2.7.
2.8 Determination and Payment of Contingent Consideration.
(a) The Parent shall, at its sole cost and expense, cause the
Accountant to deliver to the Parent and the Sellers' Representative not later
than September 30, 1999, a statement of Operating Profit (as defined in Section
9.1) for the Company for the fiscal year 1999 (July 1, 1998 - June 30, 1999) in
accordance with GAAP applied on a consistent basis (the "STATEMENT OF OPERATING
PROFIT"). Notwithstanding the foregoing, the Parent may elect to modify the
Company's actual
<PAGE>
12
financial reporting to conform to a calendar year basis consistent with the
Parent's fiscal year, in which event the Parent shall cause the Statement of
Operating Profit to be delivered by April 1, 2000, and shall pay interest at the
rate of six percent per annum commencing September 30, 1999, increasing to seven
and one-half percent per annum commencing April 1, 2000, on the amount of any
Contingent Consideration subsequently determined to have been earned in
accordance with this Section 2.8; PROVIDED, HOWEVER, that the Parent shall
nevertheless continue to separately track, through its automated financial
reporting system, the performance of contracts comprising the Company's business
as if the Company had continued to operate on a June 30, 1999 fiscal year basis.
Concurrent with the delivery of the Statement of Operating Profit, the
Accountant shall certify to the Parent that the Statement of Operating Profit
was calculated in accordance with the provisions of this Agreement (and the
Parent shall use its reasonable efforts to cause the Accountant to allow access
to the Accountant's workpapers prepared in connection with the Statement of
Operating Profit to the Sellers' Representative in order to assist the Sellers'
Representative to determine whether the Statement of Operating Profit was
calculated in accordance with the provisions of this Agreement, if the Sellers'
Representative executes and delivers on behalf of himself and the Sellers the
Accountant's customary agreement for indemnification and release of liability
(an "INDEMNIFICATION AGREEMENT") in a form acceptable to the Accountant).
(b) The Sellers' Representative and his agents shall have
reasonable access to all personnel of the Company and shall have the right to
review all books, accounting records and other materials of the Company and the
Subsidiaries
<PAGE>
13
relevant to the preparation of the Statement of Operating Profit that the
Sellers' Representative or his agents may reasonably request. In addition, the
Parent shall use its reasonable efforts to cause the Sellers' Representative and
his agents, after execution and delivery by the Seller's Representative and such
agents of the Indemnification Agreement with respect to the Statement of
Operating Profit, to have reasonable access to all personnel of the Accountant
involved in the preparation of the Statement of Operating Profit and to be
permitted to review the Accountant's audit work papers with respect thereto. In
the event that the Parent and/or the Sellers' Representative disagree(s) in any
respect with the Statement of Operating Profit, the Sellers' Representative
and/or the Parent shall deliver to the other, within twenty-one (21) days after
delivery by the Accountant of such Statement of Operating Profit, a written
notice (an "OBJECTION NOTICE") specifying the matters to which it objects and
the basis for such disagreement (together with any authority or documentation
supporting its position). Any Objection Notice may include disagreements with
respect to any adjustments in the calculation of Operating Profit made pursuant
to Section 4.19(A) of this Agreement, such disagreement to be resolved in
accordance with the methodology provided in this Section 2.8 of this Agreement.
The Parent and the Sellers' Representative shall thereupon endeavor in good
faith to resolve any disagreement or dispute arising out of the Objection
Notice. In the event such parties do so, such parties shall promptly execute a
document which sets forth the resolution of such disagreement or dispute.
(c) In the event that the Parent or the Sellers'
Representative timely receives an Objection Notice and the Sellers'
Representative and the Parent are
<PAGE>
14
unable to resolve the disagreement specified in the Objection Notice within ten
(10) Business Days after receipt of the Objection Notice, the disagreement shall
be submitted to a nationally recognized firm of independent public accountants
(other than the Accountant) chosen by the Parent and the Sellers' Representative
(the "CONTINGENCY ACCOUNTANT"); PROVIDED that if the Parent and the Sellers'
Representative are unable to agree on such accountants within fourteen (14) days
following the end of such ten (10) Business Day period, then the Parent and the
Sellers' Representative will within seven (7) days following the end of such
fourteen (14) day period jointly request that the president of the American
Arbitration Association (the "AAA") select an accountant, such accountant to be
associated with a nationally recognized accounting firm other than the
Accountant (such AAA-appointed accountant to be deemed the "CONTINGENCY
ACCOUNTANT" for purposes of this Agreement). Upon delivery to the Parent and the
Sellers' Representative of a statement in writing setting forth the conclusion
of the Contingency Accountant's opinion of the disputed item or items and the
effect of such conclusion on the Statement of Operating Profit, such
determination shall be final and binding upon the Parent and the Sellers without
any further right of appeal.
(d) The Contingency Accountant shall have reasonable access to
all personnel of the Company and shall have the right to review all books,
accounting records and other materials pertaining to the Statement of Operating
Profit that the Contingency Accountant shall request. The Contingency Accountant
shall render its determination on the disagreement submitted to it within sixty
(60) days of submission of the disagreement by the Parent and the Sellers'
Representative. The
<PAGE>
15
Statement of Operating Profit will be deemed to be final, binding and not
subject to appeal (the "FINAL STATEMENT OF OPERATING PROFIT"), on and as of the
first to occur of the following: (i) the expiration of the twenty-one (21) day
period referred to in Section 2.8(b) without the delivery of an Objection Notice
respecting the Statement of Operating Profit; (ii) the execution of a document
pursuant to Section 2.8(b), setting forth the resolution of any dispute
described in any Objection Notice respecting the Statement of Operating Profit,
by the Sellers' Representative and the Parent; and (iii) the date that the
Contingency Accountant delivers the relevant determination to the Parent and the
Sellers' Representative pursuant to Section 2.8(c), it being understood that the
Final Statement of Operating Profit shall mean a Statement of Operating Profit
as modified by any such resolution or determination.
(e) Payment of Contingent Consideration. The Shareholders and
the Option Holders shall be entitled to receive $3.75 million of aggregate
Contingent Consideration if the Company's Operating Profit as set forth on the
Final Statement of Operating Profit (the "FINAL OPERATING PROFIT") is $5.4
million or greater, but less than $5.7 million. Alternatively, the Shareholders
and the Option Holders shall be entitled to receive $4.375 million of aggregate
Contingent Consideration if the Company's Final Operating Profit is $5.7 million
or greater, but less than $6.0 million. Alternatively, the Shareholders and the
Option Holders shall be entitled to receive $5.0 million if the Company's Final
Operating Profit is $6.0 million or greater, but less than $6.6 million.
Alternatively, the Shareholders and the Option Holders shall be entitled to
receive $5.625 million of aggregate Contingent Consideration if the Company's
Final Operating Profit is $6.6 million or greater, but
<PAGE>
16
less than $7.2 million. Alternatively, the Shareholders and the Option Holders
shall be entitled to receive $6.25 million of aggregate Contingent Consideration
if the Company's Final Operating Profit is $7.2 million or greater. The Parent
shall pay or cause to be paid to each Shareholder and the Parent shall pay or
cause the Surviving Corporation to pay to each Option Holder the aggregate
Contingent Consideration payable hereunder divided by the sum of N plus S for
each share of Common Stock held or covered by Options held by such Person at the
Effective Time. Any payment required to be made under this Section 2.8 shall be
made not later than the tenth (10th) Business Day after the Statement of
Operating Profit is deemed to be the Final Statement of Operating Profit.
(f) Fees and expenses, if any, of the Contingency Accountant
with respect to the Statement of Operating Profit shall be paid by the Company,
except that such fees and expenses shall be paid by the Shareholders and Option
Holders pro rata by number of shares of Common Stock owned or covered by Options
held at the Effective Time if the Sellers' Representative delivers an Objection
Notice with respect to the Statement of Operating Profit which does not result
in an increase in the Contingent Consideration payable under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company and the Sellers.
Each of the Sellers represents and warrants (it being understood that as to the
matters set forth in Sections 3.1(B)(i), 3.1(B)(iii), 3.1(D), 3.1(K)(i) and
3.1(T) each Seller is
<PAGE>
17
making such representation and warranty with respect to such Seller only), and
the Company represents and warrants (except as to the matters set forth in
Sections 3.1(B)(i), 3.1(B)(iii), 3.1(D) and 3.1(K)(i), as to which no
representation or warranty is made by the Company), to the Parent and Merger Sub
that:
(A) Organization and Qualification of the Company. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own, lease and operate its properties and assets and to carry
on its business as now being or heretofore conducted. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its property or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not have a Company Material Adverse Effect (as defined
below). "COMPANY MATERIAL ADVERSE EFFECT," as used in this Agreement, shall mean
any event, change or effect that is or could reasonably be expected to be
materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations, results of operations, or reasonably
anticipated prospects of the Company and its Subsidiaries taken as a whole. The
copies of the Certificates of Incorporation and By-Laws (or comparable
instruments) of the Company and each of the Subsidiaries previously delivered to
the Parent or its counsel, in each case as amended, are complete and correct.
Schedule 3.1(A) sets forth the name and jurisdiction of organization of each
corporation or other entity which the Company directly or indirectly controls
(each, a "SUBSIDIARY," and collectively, "SUBSIDIARIES") and each other
corporation or other entity in which
<PAGE>
18
the Company directly or indirectly owns or has the power to vote capital stock
or other ownership interests. The Company does not directly or indirectly own
any interest in any other person or entity. Each of the Subsidiaries is an
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization and has all requisite power and authority to
own, lease and operate its properties and assets and to carry on its business as
now being and as heretofore conducted. The respective minute books, or
comparable records, of the Company and each of the Subsidiaries contain true and
complete records of all meetings and consents in lieu of meetings of their
Boards of Directors or similar governing bodies (and any committees thereof) and
of their stockholders (or partners or members) since the times of their
respective incorporation or formation, and accurately reflect all transactions
referred to in such minutes and consents in lieu of meeting in all material
respects. The stock books (or analogous ownership records) of the Company and
each of the Subsidiaries are true and complete.
(B) Authority to Execute and Perform Agreement.
(i) Each Seller has all requisite power and all
authority and approvals required to enter into, execute and deliver this
Agreement and each and every agreement and instrument contemplated hereby to
which it is or will be a party (and, if applicable, a Non-Compete and
Non-Disclosure Agreement) and to perform fully such Seller's obligations
hereunder and thereunder. This Agreement has been duly executed and delivered by
each Seller, and on the Closing Date, each and every agreement and instrument
contemplated hereby to which such Seller is a party on the Closing Date
(including, if applicable, a Non-Compete and Non-
<PAGE>
19
Disclosure Agreement) will be duly executed and delivered by such Seller.
Assuming due execution and delivery hereof and thereof by the Parent, this
Agreement and each such other agreement and instrument will be valid and binding
obligations of such Seller, enforceable against such Seller in accordance with
their respective terms, except that such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally, and (ii) general
equitable principles.
(ii) The Company has full right and power and all
authority and approvals required to enter into, execute and deliver this
Agreement and each and every agreement and instrument contemplated hereby to
which it is or will be a party and to perform fully its obligations hereunder
and thereunder. The Board of Directors, at a meeting duly called and convened,
has unanimously adopted a resolution approving and adopting this Agreement and
the Merger. This Agreement has been duly authorized, executed and delivered by
the Company, and on the Closing Date, each and every agreement and instrument
contemplated hereby to which the Company is a party on the Closing Date will be
duly executed and delivered by the Company. Assuming due execution and delivery
hereof and thereof by the Parent, this Agreement and each such other agreement
and instrument will be valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization or
other similar laws affecting or relating to enforcement of creditors' rights
generally, and (ii) general equitable principles.
<PAGE>
20
(iii) The Sellers' Representative has all requisite
power and authority and approvals required to enter into, execute and deliver
this Agreement and each and every agreement and instrument contemplated hereby
to which he is or will be a party and to perform fully his obligations hereunder
and thereunder. This Agreement has been duly executed and delivered by the
Sellers' Representative, and on the Closing Date, each and every agreement and
instrument contemplated hereby to which the Sellers' Representative is a party
on the Closing Date will be duly executed and delivered by the Sellers'
Representative. Assuming due execution and delivery hereof and thereof by the
Parent, this Agreement and each such other agreement and instrument will be
valid and binding obligations of the Sellers' Representative enforceable against
the Sellers' Representative, in accordance with their respective terms, except
that such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors' rights generally, and (ii) general equitable principles.
(C) Capital Stock. The authorized capital stock of the Company
consists of 10,000,000 shares of common stock, with a par value of $0.01 each,
of which 2,500,000 shares are denominated Class A Common Stock, and 7,500,000
shares are denominated Class A Nonvoting Common Stock. Of the 10,000,000 shares,
1,463,334 of the Class A Common Stock shares and 658,066 of the Class A
Nonvoting Common Stock shares are duly authorized, validly issued and
outstanding, fully paid and nonassessable, and are owned beneficially and of
record by the Shareholders, in the respective amounts set forth on Schedule
3.1(C), free and clear of any pledges, liens, charges, encumbrances, voting or
transfer restrictions,
<PAGE>
21
security interests, restrictions and claims of any kind ("LIENS"). The Company
has no other authorized, issued or outstanding class of capital stock. The
entire interest in each of the Subsidiaries that is owned by the Company, is
owned by the Company in the amounts set forth on Schedule 3.1(C), free and clear
of any Liens. Except for options granted under the Option Plan, the amounts and
exercise prices of which are as set forth on Schedule 3.1(C), there are no
existing options, rights, subscriptions, warrants, unsatisfied preemptive
rights, calls or commitments of any character relating to (i) the authorized and
unissued capital stock of the Company or any of the Subsidiaries, or (ii) any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from the Company or any of the
Subsidiaries any shares of capital stock of the Company or any of the
Subsidiaries, and no such convertible or exchangeable securities or obligations
are outstanding. The Shareholders are the lawful owners, beneficially and of
record, of all of the Common Stock of the Company, free and clear of all Liens.
Immediately after giving effect to the Merger, Parent will own free and clear of
any Liens all of the outstanding capital stock of the Surviving Corporation
(except for Liens that may attach by reason of the Parent's ownership thereof)
and no Option shall be outstanding.
(D) Vote Required. The execution and delivery of this
Agreement, the Unanimous Written Consent and the Effective Time Unanimous
Consent constitutes the only vote, consent or approval of the holders of any
class or series of capital stock of the Company necessary to approve the Merger
and no
<PAGE>
22
further action of the Shareholders or Option Holders is necessary to consummate
the transactions contemplated by this Agreement.
(E) Financial Statements. The consolidated balance sheets of
the Company and the Subsidiaries as of June 30, 1997, and June 30, 1996, and the
related consolidated statements of income, shareholders' equity and changes in
financial position for the years then ended, including the footnotes thereto,
audited by Grant Thornton LLP, independent certified public accountants, which
have been delivered to the Parent, fairly present, in all material respects, the
consolidated financial position of the Company and the Subsidiaries as at such
dates, and the consolidated results of operations and changes in financial
position, as the case may be, of the Company and the Subsidiaries for such
respective periods, in each case in accordance with GAAP consistently applied.
(The foregoing consolidated financial statements of the Company and the
Subsidiaries as of June 30, 1997, and for the year then ended are sometimes
herein called the "AUDITED FINANCIALS." The foregoing balance sheet included in
the Audited Financials is sometimes herein called the "BALANCE SHEET.") The
unaudited balance sheet of the Company as of March 31, 1998, and the related
statements of income, shareholders' equity and changes in financial position for
the nine months then ended, including the footnotes thereto, which have been
delivered to the Parent, fairly present, in all material respects, the financial
position of the Company as of such dates and the results of operations of the
Company for the nine months then ended, in each case in conformity with GAAP,
applied on a basis consistent with that of the Audited Financials (subject to
the normal year-end audit adjustments, none of which will be material).
<PAGE>
23
(F) Absence of Certain Changes or Events. Except as described
herein or in Schedule 3.1(F), from June 30, 1997, there has been no change in
the business, properties, assets, reasonably anticipated prospects, operations
or condition (financial or otherwise) of the Company or any of the Subsidiaries
which has resulted or reasonably could be expected to result in or which the
Sellers, the Company or any Subsidiary has reason to believe could reasonably be
expected to result in a Company Material Adverse Effect, and none of the
Sellers, the Company or any of the Subsidiaries knows of any such change that is
threatened, nor has there been any damage, destruction or loss affecting the
assets, properties, business, reasonably anticipated prospects, operations or
condition (financial or otherwise) of the Company or any of the Subsidiaries,
whether or not covered by insurance which has resulted or reasonably could be
expected to result in or which the Sellers, the Company or any Subsidiary has
reason to believe could reasonably be expected to result in a Company Material
Adverse Effect. Except as set forth on Schedule 3.1(F), from June 30, 1997,
neither the Company nor any of the Subsidiaries has: (i) purchased, agreed to
purchase, retired, redeemed or called for redemption any of its outstanding
shares, issued or sold or purchased any options, warrants, shares, bonds or
other securities, interests or rights to acquire any of its securities or
interests, or declared or paid any dividend or distribution on or authorized or
effected any split up or recapitalization of any such securities; (ii) made or
authorized any change in its certificate of incorporation or bylaws (or
comparable instruments); (iii) made or contracted for any capital expenditures
in excess of $10,000 per item and $50,000 in the aggregate, or made any other
commitments or
<PAGE>
24
disbursement or incurred or paid any liabilities or obligations, except in the
usual and ordinary course of business consistent with past practice (the
"ORDINARY COURSE OF BUSINESS"); (iv) sold, leased, abandoned, or otherwise
transferred (or contracted to sell, lease or otherwise transfer) any of its
assets or properties, except in the Ordinary Course of Business, or mortgaged,
pledged or subjected to any Lien any of its assets; (v) canceled any debts or
claims or waived any rights in excess of $10,000 in the aggregate; (vi)
transferred or granted any material right under any lease, license, agreement,
or other valuable asset; (vii) merged with or into or consolidated with any
other person, subdivided or in any way reclassified any shares of its capital
stock or changed or agreed to change in any manner the rights of its outstanding
capital stock or the character of its business; (viii) entered into or amended
any employment agreement, entered into or amended any agreement with any labor
union or association representing any employee, adopted, entered into, or
amended any employee benefit plan, program, agreement or arrangement, or made
any change in the actuarial methods or assumptions used in funding any defined
benefit pension plan, or made any change in the assumptions or factors used in
determining benefit equivalencies thereunder; (ix) except for short-term bank
borrowings in the Ordinary Course of Business, incurred any indebtedness for
borrowed money; (x) made any change in its accounting methods or practices or
made any change in depreciation or amortization policies or lives adopted by it,
except concurrently with changes in GAAP; (xi) made any wage or salary increase
or bonus, or increase in any other direct or indirect compensation, for or to
any of its officers, directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or
<PAGE>
25
agreement to make or pay the same, other than those made in the Ordinary Course
of Business; (xii) made any loan or advance to any of its shareholders,
officers, directors, employees, consultants, agents or other representatives
(other than travel advances made in the Ordinary Course of Business), or made
any other loan or advance otherwise than in the Ordinary Course of Business;
(xiii) made any payment or commitment to pay any severance or termination pay to
any of its officers, directors, employees, consultants, agents or other
representatives, other than payments made in the Ordinary Course of Business to
persons other than its officers or directors; (xiv) except in the Ordinary
Course of Business, entered into or materially amended any contract or other
agreement to which it is a party, or by or to which it or its assets or
properties are bound or subject, in each case, calling for an aggregate purchase
or sale price or payments of more than $50,000, or pursuant to which it agreed
to indemnify any party or to refrain from competing with any party; (xv) except
in the Ordinary Course of Business and in amounts less than $10,000 in each
case, incurred, guaranteed or assumed any debt, obligation or liability (whether
absolute or contingent and whether or not currently due and payable); (xvi)
except for inventory or equipment acquired in the Ordinary Course of Business,
made any acquisition of all or any part of the assets (except for purchases of
assets held for sale in the Ordinary Course of Business for less than $10,000 in
the aggregate), properties, capital stock or business of any other person;
(xvii) paid, directly or indirectly, any of its material liabilities before the
same became due in accordance with its terms or otherwise than in the Ordinary
Course of Business; (xviii) suffered or incurred any damage, destruction or loss
(whether or not covered by insurance)
<PAGE>
26
materially adversely affecting the assets, properties, business, reasonably
anticipated prospects, operations or condition (financial or otherwise) of the
Company or any of the Subsidiaries; (xix) terminated or failed to renew, or
received any written threat (that was not subsequently withdrawn) to terminate
or fail to renew, any contract or other agreement that is or was material to the
assets, properties, business, reasonably anticipated prospects, operations or
condition (financial or otherwise) of the Company or any of the Subsidiaries; or
(xx) agreed, whether in writing or otherwise, to take any action described in
this Section 3.1(F).
(G) Litigation and Liabilities. Except as listed on Schedule
3.1(G) hereto and subject to Section 8.5(a)(ii), there are no actions, suits,
demands, or claims or legal, administrative or arbitral proceedings, hearings or
investigations pending or, to the Knowledge of the Company, any of the
Subsidiaries or any of the Sellers, threatened against or involving the Company
or any of the Subsidiaries or any of their respective property or assets. Except
as set forth on Schedule 3.1(G) and subject to Section 8.5(a)(ii), there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against or involving the
Company or any of the Subsidiaries.
(H) Title to Properties; Absence of Liens, etc. The Company
and each of the Subsidiaries has good title to all of its properties and assets,
real, personal and fixed, free and clear of any Liens, except (i) for Liens for
Taxes (as defined herein) not yet due and payable, (ii) as reflected in the
Balance Sheet, (iii) for such properties and assets as may have been sold since
the date hereof in the
<PAGE>
27
Ordinary Course of Business, (iv) Liens not securing debt that do not materially
detract or interfere with the value of the property, and (v) Liens set forth on
Schedule 3.1(H) hereto ("PERMITTED LIENS"). All of the Company's and each
Subsidiary's properties and assets are, in all material respects, in good
operating condition and repair, subject to ordinary wear and tear, unless
surplus to the Company's prudent and reasonable business needs.
(I) Licenses and Registrations; Compliance with Laws, etc. The
Company and each of the Subsidiaries has all permits, authorizations, licenses,
orders, registrations and approvals of, and has made all required registrations
with, any government or political subdivision thereof, whether Federal, state,
local or foreign, or any agency or instrumentality of any such government or
political subdivision, or any insurance company or fire rating and any other
similar board or organization or other non-governmental regulating body (to the
extent that the rules, regulations or orders of such body have the force of law)
or any court or arbitrator (each a "GOVERNMENTAL BODY," and collectively,
"GOVERNMENTAL BODIES") which are material to or necessary for the Company and
each of the Subsidiaries to carry on their respective businesses as presently
conducted or material to the intended use of any properties of the Company or
any of the Subsidiaries (collectively, "PERMITS"). Such Permits are in full
force and effect; subject to Section 8.5(a)(ii) no violations are or have been
recorded in respect of any Permit; and no proceeding is pending or, to the
Knowledge of the Company, any of the Subsidiaries or any of the Sellers,
threatened to revoke or limit any Permit. The Company and each of the
Subsidiaries is in compliance in all material respects with the terms of such
Permits. Except as
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28
listed on Schedule 3.1(I) hereto and subject to Section 8.5(a)(ii), the
businesses of the Company and each Subsidiary are not being conducted in
conflict with, violation of or default under any law, rule, decree, regulation,
ordinance or order applicable to their businesses, properties, assets and
operations (including, without limitation, those relating to wages and hours,
occupational health and safety, record keeping, customs, environmental matters,
export control, hazardous waste disposal, pollution control, possession of
classified information or zoning), and the Company has filed with the proper
authorities all statements and reports required by all applicable laws, rules,
decrees, regulations, judgments, injunctions, awards, ordinances and orders. The
Company and each of the Subsidiaries has at all times complied with the
provisions of The Foreign Corrupt Practices Act of 1977, as amended. Neither the
Company nor any of the Subsidiaries has made any illegal payment to officers or
employees of any governmental or regulatory body, or made any payment to
customers for the sharing of fees or to customers or suppliers for rebating of
charges, or engaged in any other reciprocal practices, or made any illegal
payment or given any other illegal consideration to purchasing agents or other
representatives of customers in respect of the sales made or to be made by the
Company or any of the Subsidiaries.
(J) Intangible Property. Schedule 3.1(J) sets forth a list of
all patents, trademarks, copyrights, service marks, trade names and franchises,
all applications for any of the foregoing, and all permits, grants and licenses
or other rights running to or from the Company or any of the Subsidiaries
relating to any of the foregoing (collectively, "INTELLECTUAL PROPERTY RIGHTS").
Except as disclosed on Schedule 3.1(J), (i) the use and registration of such
Intellectual Property Rights do not
<PAGE>
29
conflict with the intellectual property rights of any other person, firm or
corporation and to the Knowledge of the Company, the Subsidiaries or any of the
Sellers, no other person's, firm's or corporation's operations conflict with the
use and registration of the Intellectual Property Rights; (ii) there are not now
any suits pending or, to the Knowledge of any of the Sellers, the Company or any
of the Subsidiaries, threatened against or by the Company or any of the
Subsidiaries claiming a conflict by the Company or any of the Subsidiaries with
the Intellectual Property Rights; (iii) none of the Sellers, the Company or any
of the Subsidiaries has notice of any adversely held patent, invention,
copyright, trademark, service mark or trade name of any other person or notice
of any claim of any other person relating to any of the Intellectual Property
Rights listed on Schedule 3.1(J), and none of the Company, any of the
Subsidiaries or any of the Sellers knows of any reasonable basis for any such
charge or claim; and (iv) the Intellectual Property Rights are owned by the
Company or its Subsidiaries free and clear of all liens, claims, charges,
mortgages, pledges, security interests and other encumbrances of any nature
whatsoever.
(K) Non-Contravention.
(i) The execution and delivery of this Agreement
by each Seller and the execution of each and every other agreement and
instrument contemplated hereby by or on behalf of, and the consummation of the
transactions contemplated hereby and thereby and the performance by such Seller
of this Agreement and each such other agreement and instrument in accordance
with their respective terms will not (a) violate any provision of the
Certificate of Incorporation
<PAGE>
30
or By-Laws (or comparable instruments) of the Company or any of the
Subsidiaries, (b) except as set forth on Schedule 3.1(K), violate, conflict with
or result in the breach of any material provision of, or result in a material
modification of or otherwise entitle any party to terminate, or constitute
(whether after the filing of notice or lapse of time or both) a material default
(by way of substitution, novation or otherwise) under, any contract, agreement,
indenture, note, bond, loan, instrument, lease, conditional sales contract,
mortgage, license, franchise, commitment or other binding arrangement
(collectively, the "CONTRACTS") to which the Company or any of the Subsidiaries
is a party or by or to which any of the Company's or any Subsidiary's assets or
properties may be bound or subject and which is required to be disclosed under
this Agreement, (c) result in the creation or imposition of any material Lien
upon any of the property or assets of the Company or any of the Subsidiaries
pursuant to any provision of, any Contract or Lien, (d) subject to Section
8.5(a)(ii), violate any law, regulation, statute, injunction, order, arbitration
award, judgment or decree applicable to, against, or binding upon, the Company
or any of the Subsidiaries or by which any of the Company's or any Subsidiary's
securities, business or property is bound, or (e) subject to Section 8.5(a)(ii),
violate or result in the revocation or suspension of any Permit.
(ii) The execution and delivery of this Agreement
by the Company and each and every other agreement and instrument contemplated
hereby, and the consummation of the transactions contemplated hereby and thereby
and the performance by the Company of this Agreement and each such other
agreement and instrument in accordance with their respective terms will not
<PAGE>
31
(a) violate any provision of the Articles of Incorporation or By-Laws (or
comparable instruments) of the Company or any of the Subsidiaries, (b) except as
set forth on Schedule 3.1(K), violate, conflict with or result in the breach of
any material provision of, or result in a material modification of or otherwise
entitle any party to terminate, or constitute (whether after the filing of
notice or lapse of time or both) a material default (by way of substitution,
novation or otherwise) under, any Contract to which the Company or any of the
Subsidiaries is a party or by or to which any of the Company's or any of the
Subsidiaries' assets or properties may be bound or subject and which is required
to be disclosed under this Agreement, (c) result in the creation or imposition
of any material Lien upon any of the property or assets of the Company or any of
the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) subject
to Section 8.5(a)(ii), violate any law, regulation, statute, injunction, order,
arbitration award, judgment or decree applicable to, against, or binding upon,
such Seller, the Company or any of the Subsidiaries or by which any of such
Seller's, the Company's or any Subsidiary's securities, business or property is
bound or (e) subject to Section 8.5(a)(ii), violate or result in the revocation
or suspension of any Permit.
(L) Consent and Approvals. Except as set forth on Schedule
3.1(L), none of the execution and delivery of this Agreement and each and every
other agreement and instrument contemplated hereby by the Company, the Sellers
and/or the Sellers' Representative, the consummation by the Company, the Sellers
and/or the Sellers' Representative of the transactions contemplated hereby or
thereby or compliance by the Company, any Seller and/or the Sellers'
Representative
<PAGE>
32
with any of the provisions hereof or thereof will require any consent, approval
or action of, or make any filing with or give notice to, any Governmental Body.
(M) Employee Benefit Plans; ERISA. Set forth on Schedule
3.1(M) is a true and complete list of each deferred compensation, executive
compensation, incentive compensation, stock purchase or other stock-based
compensation plan, severance or termination pay, holiday, vacation or other
bonus plan or practice, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit sharing, pension, or
retirement plan, program, agreement, commitment or arrangement, and each other
employee benefit plan, program, agreement or arrangement, including, without
limitation, each "employee benefit plan" as such term is defined under Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to or required to be contributed to by the
Company or any of the Subsidiaries for the benefit of any employee or terminated
employee of the Company or any of the Subsidiaries, or with respect to which the
Company or any of the Subsidiaries has any liability, whether direct or
indirect, actual or contingent, whether formal or informal, and whether legally
binding or not (the "PLANS").
(i) Except as disclosed on Schedule 3.1(M), with
respect to each Plan, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations that have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the Audited Financials. Except as set forth on Schedule 3.1(M), the Company
and each of the Subsidiaries is
<PAGE>
33
not and has not in the past been a member of a "controlled group" for purposes
of Section 414(c) of ERISA, nor does the Company or any of the Subsidiaries have
any liability with respect to any collectively-bargained for plans subject to
the provisions of ERISA.
(ii) Except as disclosed on Schedule 3.1(M), each
Plan is in compliance with all applicable laws, including, without limitation,
ERISA and the Internal Revenue Code of 1986, as amended (the "CODE"). Each Plan
which is intended to be "qualified" within the meaning of Section 401(a) of the
Code (a) has been determined by the Internal Revenue Service (the "IRS") to be
so qualified and neither the Company nor any of the Subsidiaries, nor any of the
Sellers has any Knowledge that any Plan has been operated in a manner that would
jeopardize such qualification and (b) its related trust has been determined to
be exempt from taxation under Code Section 501(a) or the Company or the relevant
Subsidiary, as the case may be, has requested an initial favorable IRS
determination of qualification and/or exemption. None of the Company nor any of
the Subsidiaries or any of the Sellers knows of any fact which would adversely
affect the qualified status of such Plans or the exempt status of such trusts,
and the Company and each of the Subsidiaries has received a favorable IRS
determination as to the qualified status of each such Plan with respect to the
Tax Reform Act of 1986 and has been operated in conformity with all applicable
laws.
(iii) Except as disclosed on Schedule 3.1(M), with
respect to each Plan which covers any current or former officer, director,
consultant or employee (or beneficiary thereof) of the Company or any of the
Subsidiaries, the
<PAGE>
34
Sellers have delivered or made available, (or have caused the Company and each
of the Subsidiaries heretofore to have delivered or made available) to the
Parent accurate and complete copies, if applicable, of: (a) all Plan texts and
agreements and related trust agreements or annuity contracts, (b) all summary
plan descriptions and material modifications thereto and all other material
employee communications, (c) the most recent Forms 5500, if applicable, and
annual report, including all schedules thereto, (d) the most recent annual and
periodic accounting of plan assets, (e) the most recent determination letter
received from the IRS, (f) the most recent actuarial valuation, and (g) all
material communications with any Governmental Body.
(iv) With respect to each Plan: (i) such Plan has
been administered and enforced in accordance with its terms; (ii) no breach of
fiduciary duty has occurred; (iii) no dispute is pending, or to the Knowledge of
any of the Sellers, the Company or any of the Subsidiaries, threatened; (iv) no
prohibited transaction, as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred, excluding transactions effected pursuant to a statutory
or administration exemption; (v) all contributions and premiums due have been
fully accrued on the Company's and each of the Subsidiary's financial statements
and have been made on a timely basis. There are no unfunded benefit obligations
which are not accounted for by reserves or otherwise properly footnoted in
accordance with GAAP on the Company's or a Subsidiary's financial statements.
(v) No Plan is a "defined benefit pension plan" (as
defined in Code Section 414(j)), a "multiemployer plan" (as defined in ERISA
Section 3(37)) or a "multiple employer plan" (as described in Code Section
413(c))
<PAGE>
35
nor do the Company or any of the Subsidiaries have any liability to contribute
(or have at any time contributed or had an obligation to contribute) to any
multiemployer plan. No Plan will become a multiple employer plan with respect to
the Company or any of the Subsidiaries immediately after the Closing Date.
(vi) There is no arrangement under any Plan with
respect to any employee that would result in the payment of any amount that by
operation of Code Section 280(G) or 162(m) would not be deductible by the
Company or any of the Subsidiaries.
(vii) With respect to each Plan which is a "welfare
plan" (as described in ERISA Section 3(1)): (i) no such plan provides medical or
death benefits, nor shall the Company or any of the Subsidiaries be liable or
obligated for any expenses, with respect to current or former employees of the
Company or any of the Subsidiaries for periods beyond their termination of
employment (other than coverage mandated by law), and (ii) there are no
reserves, assets, surplus or prepaid premiums under any such plan referred to in
subsection (i) of this paragraph.
(viii) Except as disclosed on Schedule 3.1(M), the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any individual to severance pay, unemployment compensation or other
benefits or compensation, (ii) accelerate the time of payment or vesting, or
increase the amount of any compensation due, or in respect of, any individual,
(iii) result in or satisfy a condition to the payment of compensation that
would, in combination with any other payment, result in an "excess parachute
payment" within the meaning of Code Sec tion 280G(b)(1); or (iv) constitute or
involve a prohibited transaction (as defined in
<PAGE>
36
ERISA Section 406 or Code Section 4975), constitute or involve a breach of
fiduciary responsibility within the meaning of ERISA section 502(l) or otherwise
violate Part 4 of Subtitle B of Title I of ERISA.
(N) Insurance Policies. True and complete copies of all
policies of fire, casualty, liability, product liability, burglary, fidelity,
worker's compensation, life, vehicular and other forms of insurance held by or
on behalf of the Company or the Subsidiaries have been made available to the
Parent or its representatives. All premiums due and payable for such insurance
have been duly paid, and such policies, or extensions, renewals or replacements
(on comparable terms to the extent available) thereof, in such amounts will be
outstanding and in full force and effect without interruption up to the Closing
Date. Such policies insure against all risks and liabilities to an extent and in
a manner customarily insured against by persons operating comparable properties,
assets or businesses in the same geographic locations. The Company has made
available to the Parent a brief description (specifying the insurer and the
policy number or covering note number with respect to binders, describing each
pending claim thereunder of more than $25,000, setting forth the aggregate
amounts paid out under each such policy through the date hereof and the
aggregate limit, if any, of the insurer's liability thereunder) of all policies
or binders of fire, liability, worker's compensation, vehicular and other
insurance held by or on behalf of the Company or any of the Subsidiaries. The
Company has made available to the Parent with respect to each policy a list and
brief description of all claims in excess of $25,000 (exclusive of claims under
medical and dental policies) made by the Company or any of the Subsidiaries
during the
<PAGE>
37
Company's past two fiscal years and the amount paid out under each policy with
respect to such claims. None of the Company, any of the Subsidiaries or any of
the Sellers has any Knowledge of any facts or of the occurrence of any event
that is reasonably likely to form the basis for any material claim against the
Company or any of the Subsidiaries which will not be fully covered by such
policies. Neither the Company nor any of the Subsidiaries has received any
written notice from any of its insurance carriers that any insurance premiums
will be materially increased in the future.
(O) Agreements. Schedule 3.1(O) hereto lists all of the
following contracts and other agreements to which the Company or any of the
Subsidiaries is a party or by or to which any of them or any of their assets or
properties are bound or subject: (i) contracts and other agreements with any
current or former officer, director, shareholder, employee, consultant, agent or
other representative or with an entity in which any of the foregoing is a
contracting person; (ii) contracts and other agreements with any labor union or
association representing any employee; (iii) contracts and other agreements,
including teaming agreements, that the Company has, or intends to have, with
TECHMATICS Next Century Integration, L.L.C. ("TNCI") or TECHMATICS Information
Alliance and Communications, L.L.C. ("TIAC") (or with any Person affiliated or
associated with TNCI or TIAC) for the performance or pursuit of business
opportunities of mutual interest; (iv) contracts and other agreements calling
for an aggregate purchase or sale price or payments of more than $100,000 in any
one case (or in the aggregate, in the case of any related series of contracts
and other agreements) for the purchase or sale
<PAGE>
38
of materials, supplies, equipment, merchandise or services that contain an
escalation, renegotiation or redetermination clause; (v) contracts and other
agreements calling for an aggregate purchase or sale price or payments of more
than $50,000 in any one case (or in the aggregate, in the case of any related
series of contracts and other agreements) for the sale of any of its assets or
properties other than in the Ordinary Course of Business or for the grant to any
person of any preferential rights to purchase any of its assets or properties;
(vi) joint venture agreements; (vii) contracts or other agreements under which
the Company or any of its Subsidiaries agrees to indemnify any party or to share
tax liability of any party; (vii) contracts and other agreements calling for an
aggregate purchase or sale price or payments of more than $50,000 in any one
case (or in the aggregate, in the case of any related series of contracts and
other agreements) that cannot be canceled by the Company or any of the
Subsidiaries with less than ninety days' notice without incurring liability,
premium or penalty; (viii) contracts and other agreements with customers or
suppliers for the sharing of fees, the rebating of charges or other similar
arrangements; (ix) contracts and other agreements containing obligations or
liabilities of any kind to holders of the Company's or any of the Subsidiaries'
securities as such (including, without limitation, an obligation to register any
of such securities under any federal or state securities laws); (x) contracts
and other agreements containing covenants of the Company or any of the
Subsidiaries not to compete in any line of business or with any person in any
geographical area or covenants of any other person not to compete with the
Company or any of the Subsidiaries in any line of business or in any
geographical area; (xi) contracts and other agreements relating to the
acquisition by
<PAGE>
39
the Company or any of the Subsidiaries of any operating business or the capital
stock of any other person; (xii) options for the purchase of any asset, tangible
or intangible, requiring the payment to any person of a commission or fee;
(xiii) contracts and other agreements for the payment of fees or other
consideration to any officer or director of the Company or any of the
Subsidiaries or to any other entity in which any of the foregoing has an
interest; (xiv) contracts and other agreements relating to the borrowing of
money except for such contracts and agreements involving a principal amount of
not more than $10,000 in the aggregate; (xv) contracts with any of the Sellers
or any corporation in which any of such Sellers, individually or in the
aggregate, owns a controlling interest (other than the Company or any of the
Subsidiaries) or in which any Seller is a director, officer or employee; and
(xvi) any other contract or other agreement calling for an aggregate purchase
price or sale price or payments of more than $25,000 in any one case (or in the
aggregate, in the case of any related series of contracts and other agreements)
whether or not made in the Ordinary Course of Business. True and complete copies
of all of the foregoing, in each case as amended to date, have been delivered
to, or, to the extent not requested to be delivered, have been made available
for inspection by, the Parent.
(P) Validity of Agreements. All contracts, leases, commitments
and other agreements described or listed in Schedule 3.1(O) constitute legal,
valid and binding obligations of the Company and each of the Subsidiaries, as
the case may be, are in full force and effect, and are enforceable in accordance
with their respective terms except as enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar
<PAGE>
40
laws affecting creditors' rights generally and (ii) general principles of
equity. The Company and each of the Subsidiaries have paid in full all amounts
due thereunder which are due and payable or accrued in accordance with GAAP, all
amounts due to others thereunder (and have properly recognized revenues due from
others thereunder), and have satisfied in full or provided for all of their
liabilities and obligations thereunder which are due and payable, except amounts
or liabilities disputed in good faith by the Company or any of the Subsidiaries
for which adequate reserves have been set aside. Neither the Company nor any of
the Subsidiaries is in default under any of such contracts or agreements, nor to
the Knowledge of the Company, the Subsidiaries or any of the Sellers, does any
condition exist that, with notice or lapse of time or both, would constitute a
default thereunder. To the Knowledge of each of the Sellers, the Company and
each of the Subsidiaries, no other party to any such contract or other agreement
is in default thereunder, nor does any condition exist that with notice or lapse
of time or both would constitute a default thereunder. None of the Company, any
of the Subsidiaries or any of the Sellers has knowledge that any person intends
to terminate (whether for cause or convenience) or default under any contract or
other agreement listed on Schedule 3.1(O) before its stated term, if any. Except
as set forth on Schedule 3.1(P), none of the Sellers, the Company or any of the
Subsidiaries has any Knowledge of a claim, actual or pending, by any
Governmental Body under any contract or agreement set forth on Schedule 3.1(O).
Except as separately identified on Schedule 3.1(P), no approval or consent of
any person is needed in order that the contracts and other agreements set
<PAGE>
41
forth on Schedule 3.1(O) or on any other Schedule continue in full force and
effect following the consummation of the transactions contemplated by this
Agreement.
(Q) Taxes.
(i) All United States federal income Tax Returns
(as defined in Section 9.1) of or with respect to the Company and the
Subsidiaries, required by law to be filed (including extensions of time to file)
on or before the Closing Date have been duly filed. All such Tax Returns are
accurate and complete in all material respects, and all taxes shown on such
returns have been timely paid.
(ii) All other Tax Returns of or with respect to the
Company and the Subsidiaries required to be filed (including extensions of time
to file) on or before the Closing Date pursuant to applicable federal, foreign,
state, local or other law have been filed. All such Tax Returns are accurate and
complete in all material respects. The Company and the Subsidiaries have paid or
withheld (or caused to be paid or withheld) all Taxes shown on such Tax Returns
as due and payable and all other Taxes due or claimed to be due, whether by
proposed assessment or otherwise, by any taxing authority have been timely paid,
except for such Taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided in accordance with GAAP.
(iii) The charges, accruals and reserves on the books
of the Company and each of the Subsidiaries in respect of any liability for
Taxes (x) based on or measured by net income for any years not finally
determined, (y) with respect to which the applicable statute of limitations has
not expired or (z) that has been previously deferred, are adequate to satisfy
any assessment for such Taxes for
<PAGE>
42
any such years. Neither the Company nor any of the Subsidiaries has any
liability for Taxes of any person or entity other than the Company and/or the
Subsidiaries.
(iv) With respect to any period for which Tax
Returns have not yet been filed, or with respect to which Taxes are not yet due
or owing, the Company and each of the Subsidiaries have made sufficient current
accruals, provisions and reserves for such Taxes in accordance with GAAP.
(v) The Company and each of the Subsidiaries have
made all required estimated Tax payments sufficient to avoid any underpayment
penalties. To the Knowledge of the Company, the Subsidiaries or any of the
Sellers, the Tax Returns of the Company and each of the Subsidiaries are not
currently nor have been in the past under audit or examination by the IRS.
(vi) Neither the Company nor any of the
Subsidiaries is a member of any affiliated, consolidated, combined or unitary
group as defined in Section 1504 of the Code, and the Treasury regulations
promulgated thereunder.
(vii) There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitations applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to the Company or any of the Subsidiaries for any taxable period.
(viii) Neither the Company nor any of the Subsidiaries
(nor their predecessors) will have any liability on or after the Closing Date
under any tax sharing agreement to which it has been a party on or before the
Closing Date, and all such tax sharing agreements shall terminate and be of no
further force and effect as of the Closing Date.
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43
(ix) No closing agreement pursuant to Section 7121
of the Code (or any predecessor provision) or any similar provision of any
state, local or foreign law that could affect the Taxes of the Company or any of
the Subsidiaries, for periods ending after the Closing Date has been entered
into by or with respect to the Company or any of the Subsidiaries.
(x) Except as set forth in Schedule 3.1(Q), to the
Knowledge of the Company, the Subsidiaries or any of the Sellers, no audit or
other proceeding by any court, governmental or regulatory authority or similar
authority is pending, and none of the Company or any of the Subsidiaries has
received any notification that such an audit or proceeding may be commenced,
with respect to any Taxes due from the Company or any of the Subsidiaries.
(xi) Neither the Company nor any of the Subsidiaries has
agreed to or is required to make any adjustment with respect to taxable periods
ending after the Closing Date pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method of the
Company or any of the Subsidiaries, there is no application pending with any
taxing authority requesting permission for any such change in any accounting
method of the Company or any of the Subsidiaries and the IRS has not proposed
any such adjustment or change in accounting method.
(xii) Except as set forth in Section 3.1(Q), neither the
Company nor any of the Subsidiaries is, has received any notice that it is or
has been, in violation (or with notice will be in violation) of any applicable
law relating to the payment or withholding of Taxes. The Company and each of the
Subsidiaries has
<PAGE>
44
duly and timely withheld from employee salaries, wages, and other compensation,
and has paid over to the appropriate taxing authorities all material amounts
required to be so withheld and paid over for all periods under all applicable
laws.
(xiii) There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company or
any of the Subsidiaries by reason of Section 280G of the Code. Further, the
Company complies with the small business exemption under Section 280G(b)(5) of
the Code.
(xiv) Except as disclosed on Schedule 3.1(Q), the
Company has properly elected under Section 1362(a) of the Code to be treated as
an S Corporation, within the meaning of Section 1361(a) of the Code, for all of
its taxable years beginning with the taxable year ended June 30, 1983, and will
continue to qualify as an S Corporation within the meaning of such subsection at
all times through its taxable year ending on the Closing Date and, accordingly,
has and will have no liability for federal income taxes or state income taxes in
Virginia, California, Mississippi, Kansas, Maine, Maryland, New Jersey and
Pennsylvania, where the Company receives S Corporation treatment for state tax
purposes, with respect to any taxable period beginning with its first taxable
year and through its taxable year ending on the Closing Date, including as a
result of the Section 338(h)(10) Election (as defined in Section 4.1(B) below).
(xv) The Shareholders will take any and all actions
required, for federal purposes and for purposes of each state listed in
subsection (xiv)
<PAGE>
45
above, to maintain the Company's status as an S corporation through its taxable
year ending on the Closing Date.
(xvi) The Company has not filed, and will not file
through the Closing Date, any state or local Tax Returns on a unitary or
combined basis with any other person.
(xvii) No Transfer Taxes (as defined in Section 9.1
below) will be due and payable in connection with this Agreement and the
transactions contemplated by this Agreement.
(R) Additional Representations.
(a) No representation or warranty made by the Company or
any Seller in this Agreement, and no statement made in any certificate,
document, exhibit or schedule prepared by or on behalf of the Company, any of
the Subsidiaries, or any Seller, which is furnished or to be furnished in
connection with the transactions herein contemplated, contains any untrue
statement of a material fact or omits to state, when read in conjunction with
all of the information contained in this Agreement and the Schedules and in
light of the circumstances when made, any material fact necessary to make such
representation, warranty or statement not misleading in any material respect;
PROVIDED, that no representation or warranty is made regarding projections with
respect to revenues from government contracts of the Company or any Subsidiary
heretofore provided to the Parent.
(b) (i) Except as disclosed on Schedule 3.1(R), there
are no past or present events, conditions, circumstances, activities, practices,
incidents, agreements, actions or plans (relating to actions or omissions by the
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46
Company or the Subsidiaries or any of their contractors, sub-contractors or
agents acting on the Company's or any Subsidiary's behalf, or, to the Knowledge
of the Company, the Subsidiaries or any of the Sellers, by any other person)
which have given rise to or will give rise to any liability on the part of the
Company or any of the Subsidiaries under any Environmental Law (as defined
below) or principles of common law relating to pollution, protection of the
environment or health and safety; (ii) to the Knowledge of the Company, the
Subsidiaries or any of the Sellers, no real property currently or formerly owned
or operated by the Company or any of the Subsidiaries is contaminated with any
Hazardous Substances as defined below to an extent or in a manner or condition
now requiring remediation under any Environmental Law; (iii) no judicial or
administrative proceeding is pending or, to the Knowledge of any of the Sellers,
the Company or any of the Subsidiaries, threatened relating to liability of the
Company or any of the Subsidiaries for any off-site disposal or contamination;
and (iv) neither the Company nor any of the Subsidiaries has received any claims
or notices alleging liability under any Environmental Law (as defined below) and
none of the Company, any of the Sellers or any of the Subsidiaries has any
Knowledge of any circumstances that could result in such claims. Schedule 3.1(R)
lists all contracts and agreements which involve the use, handling, storage,
transport or disposal of any Hazardous Substance. "ENVIRONMENTAL LAW" means any
applicable federal, state, foreign or local law, regulation, code, order,
decree, judgment, injunction or judicial opinion or other agency requirement
having the force and effect of law and relating to pollution, health and safety,
noise, odor, Hazardous Substance or the protection of the environment.
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"HAZARDOUS SUBSTANCE" means any toxic or hazardous substance that is regulated
by or under authority of any Environmental Law, including any petroleum
products, asbestos or polychlorinated biphenyls.
(S) Accounts and Notes Receivable. All accounts and notes
receivable reflected on the Balance Sheet, and all accounts and notes receivable
arising subsequent to June 30, 1997, (i) have arisen in the Ordinary Course of
Business of the Company or the Subsidiaries and represent valid obligations due
to the Company or the Subsidiaries and (ii) subject only to a reserve for bad
debts of $100,000, have been computed in a manner consistent with past practice
and reasonably estimated to reflect the probable results of collection and have
been collected or are collectible in the Ordinary Course of Business of the
Company or the Subsidiaries (as the case may be) in the aggregate recorded
amounts thereof in accordance with their terms.
(T) Potential Conflicts of Interest. Except as set forth on
Schedule 3.1(T), (a) no Seller, (b) no officer, director (excluding outside
directors as to whom no representation or warranty is made) or affiliate of the
Company or any of the Subsidiaries, (c) no immediate family member of any such
officer, director or affiliate, or of a Seller, and (d) no entity controlled by
any one or more of the foregoing: (i) owns, directly or indirectly, any interest
in (excepting not more than 5% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer, director,
employee or consultant of, any person or entity which is, or is engaged in
business as, a competitor, lessor, lessee, customer, distributor, sales agent,
or supplier of the Company or any of the Subsidiaries;
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(ii) owns, directly or indirectly, in whole or in part, any tangible or
intangible property that the Company or any of the Subsidiaries uses or the use
of which is necessary or desirable for the conduct of their respective
businesses; (iii) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company or any of the Subsidiaries, except for claims in
the Ordinary Course of Business, such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
existing on the date hereof; or (iv) on behalf of the Company or any of the
Subsidiaries, has made any payment or commitment to pay any commission, fee or
other amount to, or purchase or obtain or otherwise contract to purchase or
obtain any goods or services from, any corporation or other person of which any
officer or director of the Company or any of the Subsidiaries, or an immediate
family member of the foregoing, is a partner or stockholder (excepting stock
holdings solely for investment purposes in securities of publicly held and
traded companies).
(U) Liabilities. Except as set forth on Schedule 3.1(G) or as
reflected in the Balance Sheet, none of the Company or any of the Subsidiaries
had any direct or indirect indebtedness, liability, claim, loss, damage,
deficiency or obligation or responsibility, known or unknown, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise, whether or not of a kind required by GAAP to
be set forth on a financial statement or in the notes thereto ("LIABILITIES"),
that were not fully and adequately reflected or reserved against on the Balance
Sheet or described on any Schedule or in the notes to the Audited Financials,
including, without limitation, those relating to
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environmental and occupational safety and health matters, that, alone or in the
aggregate, could result in claims against, obligations of or liabilities to the
Company or any of the Subsidiaries which are reasonably likely to have a Company
Material Adverse Effect. None of the Company, the Subsidiaries or the Sellers
has any Knowledge of any circumstance, condition, event or arrangement that may
hereafter give rise to any Liabilities of the Company or any of the
Subsidiaries, or any successor to their respective businesses except in the
Ordinary Course of Business or as otherwise set forth on Schedule 3.1(U) or
which are reasonably likely to have a Company Material Adverse Effect.
(V) Real Estate.
(i) Ownership of Premises. Each of the Company and the
Subsidiaries is the owner of good, marketable and insurable fee title to the
land described on Schedule 3.1(V)(i)(a) and to all of the buildings, structures
and other improvements located thereon (collectively, the "OWNED REAL PROPERTY")
free and clear of all Title Defects (as defined in this Section) except as
listed on Schedule 3.1(V)(i)(b) or covered by a valid title insurance policy.
The Owned Real Property constitutes all of the real property owned by the
Company and the Subsidiaries on the date hereof. For purposes of this Agreement,
"TITLE DEFECTS" shall mean and include any mortgage, deed of trust, Lien,
pledge, security interest, claim, lease, charge, option, right of first refusal,
easement, restrictive covenant, encroachment or other survey defect, encumbrance
or other restriction or limitation whatsoever.
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(ii) Leased Real Properties. Schedule 3.1(V)(ii)
identifies all of the real property which the Company or any of the Subsidiaries
leases, has agreed to lease or has an obligation to lease in connection with its
business. Such leased real property is hereinafter referred to as the "LEASED
REAL PROPERTY."
(iii) Entire Premises. All of the land, buildings,
structures, plants, facilities and other improvements used by the Company and
the Subsidiaries in the conduct of their respective businesses are included in
the Owned Real Property and the Leased Real Property. The Leased Real Property
and the Owned Real Property are collectively referred to herein as the "Real
Property."
(iv) There are no adverse parties in possession of the
Real Property or any portion or portions thereof, and on the Closing Date the
Company and the Subsidiaries' interests in the Real Property will be free and
clear of any and all leases, licensees, occupants or tenants except as set forth
in Schedule 3.1(V)(iv). The Company has not received notice that there are any
pending or, to the Knowledge of the Company, any of the Subsidiaries or any of
the Sellers, threatened condemnation, eminent domain or similar proceedings
affecting the Real Property, any improvements thereon or any portion thereof.
The Company has not received notice that there are any pending or, to the
Knowledge of the Company, any of the Subsidiaries or any of the Sellers,
threatened requests, applications or pro ceedings to alter or restrict any
zoning or other use restrictions applicable to the Real Property or any
improvements thereon which would interfere with the conduct of the
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business of the Company or any of the Subsidiaries or the use of their
respective assets consistent with past practice.
(W) Labor Matters. The Company and each of the Subsidiaries is
not now, and has not been in the last five years, bound by or party to any
collective bargaining agreement and, to the Knowledge of each of the Sellers,
the Company and each of the Subsidiaries, no application for certification of a
collective bargaining agent is pending. Subject to Section 8.5(a)(ii), the
Company and each of the Subsidiaries is in compliance with all applicable laws
affecting employment practices and terms and conditions of employment. As of the
Closing Date neither the Company nor any of the Subsidiaries has incurred any
liability or obligation under the Worker Adjustment and Retraining Notification
Act, as it may be amended from time to time, or similar applicable state law;
nor has the Company or any of the Subsidiaries taken any action prior to the
Closing Date which could result in any such liability or obligation to the
Company or any of the Subsidiaries within the six-month period immediately
following the Closing Date if, during such six-month period, only terminations
of employment in the normal course of operations occur. The Company and each of
the Subsidiaries do not employ and have not employed any illegal aliens.
(X) Management Reserves. As of the date hereof, the Company's
overall level of management reserves equals $925,000, and from January 15, 1998,
through to the date hereof, the Company and the Subsidiaries have complied with
GAAP and have maintained any and all reserves necessary to comply with GAAP and
to meet the overall reasonable business needs of the Company and the
Subsidiaries during such period.
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(Y) Working Capital and Outstanding Debt. As of March 31,
1998, the amount of Working Capital (as defined in Section 9.1) of the Company
was $10.3 million, and the amount of outstanding Debt (as defined in Section
9.1) of the Company and the Subsidiaries was $1,150,000, net of cash on hand.
The amount of Working Capital of the Company as of the Closing Date shall be no
less than $10 million, and the amount of outstanding Debt of the Company and the
Subsidiaries shall be no more than $1.2 million.
3.2 Representations and Warranties of the Parent and the Merger
SUB. The Parent and the Merger Sub represent and warrant to the Company and the
Sellers as follows:
(A) Organization. Each of the Parent and the Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia. The Merger Sub is a newly formed, wholly owned
subsidiary of the Parent and, except for activities incident to the acquisition
of the Company, the Merger Sub has not engaged in any business activities of any
type or kind whatsoever. The Parent has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being or heretofore conducted.
(B) Authority to Execute and Perform Agreement. Each of the
Parent and the Merger Sub has full right and power and all authority and
approvals required to enter into, execute and deliver this Agreement and each
and every agreement and instrument contemplated hereby to which it is or will be
a party and to perform fully its obligations hereunder and thereunder. This
Agreement has
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53
been duly executed and delivered by the Parent and the Merger Sub, and on the
Closing Date, each and every agreement and instrument contemplated hereby to
which the Parent or Merger Sub is a party on the Closing Date will be duly
executed and delivered by the Parent or Merger Sub. Assuming due execution and
delivery hereof and thereof by the Company, the Sellers and the Sellers'
Representative, this Agreement and each such other agreement and instrument will
be valid and binding obligations of the Parent and the Merger Sub enforceable
against the Parent and the Merger Sub in accordance with their respective terms,
except that such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors' rights generally, and (ii) general equitable principles.
(C) Consents and Approvals. None of the execution and delivery
of this Agreement and each and every other agreement and instrument contemplated
hereby by the Parent and the Merger Sub, the consummation by the Parent and the
Merger Sub of the transactions contemplated hereby or thereby or compliance by
the Parent and the Merger Sub with any of the provisions hereof or thereof will
require any consent, approval or action of, or any filing with or notice to, any
Governmental Body.
(D) Non-Contravention. The execution and delivery of this
Agreement by the Parent and the Merger Sub and the execution of each and every
other agreement and instrument contemplated hereby by or on behalf of, and the
consummation of the transactions contemplated hereby and thereby and the
performance by the Parent and the Merger Sub of this Agreement and each such
other
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54
agreement and instrument in accordance with their respective terms will not (a)
violate any provision of the Articles of Incorporation or By-Laws (or comparable
instruments) of the Parent or the Merger Sub, (b) violate any law, regulation,
statute, injunction, order, arbitration award, judgment or decree applicable to,
against, or binding upon, the Parent or the Merger Sub's or by which any of the
Parent or the Merger Sub's securities, business or property is bound, or (c)
violate or result in the revocation or suspension of any of the Parent or the
Merger Sub's permits.
(E) Parent Material Adverse Effect. From January 1, 1998,
there has been no change in the business, properties, assets, reasonably
anticipated prospects, operations or condition (financial or otherwise) of the
Parent or the Merger Sub which has resulted or reasonably could be expected to
result in or which the Parent or the Merger Sub has reason to believe could
reasonably be expected to result in a Parent Material Adverse Effect (as defined
below), and neither the Parent nor the Merger Sub knows of any such change that
is threatened, nor has there been any damage, destruction or loss affecting the
assets, properties, business, reasonably anticipated prospects, operations or
condition (financial or otherwise) of the Parent or the Merger Sub, whether or
not covered by insurance which has resulted or reasonably could be expected to
result in or which Parent or Merger Sub has reason to believe could reasonably
be expected to result in a Parent Material Adverse Effect. "PARENT MATERIAL
ADVERSE EFFECT," as used in this Agreement, shall mean any event, change or
effect that is or could reasonably be expected to be materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business,
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55
operations, results of operations, or reasonably anticipated prospects of the
Parent and the Merger Sub taken as a whole.
(F) Parent Litigation. There are no actions, suits, demands,
or claims or legal, administrative or arbitral proceedings, hearings or
investigations pending or, to the knowledge of the executive officers of the
Parent or the Merger Sub (after making due inquiry of such employees of the
Parent or Merger Sub who customarily would have knowledge of such matters),
threatened against or involving the Parent or the Merger Sub, or any outstanding
orders, judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving the Parent or the
Merger Sub which could have a Parent Material Adverse Effect.
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 Taxes; Section 338(h)(10) Election.
(A) As the shareholders of an S corporation, the Shareholders
will pay and discharge and be responsible for any and all Taxes due or payable
by the Shareholders and by the Company for any taxable year or taxable period
ending on or before the Closing Date including, without limitation, any
liability that the Shareholders may owe as individuals in any jurisdiction in
which the Company is treated as an S corporation. In addition, the Shareholders
will pay and discharge and be responsible for any State taxes (including,
without limitation, excise and franchise taxes) due or payable by the Company
for any taxable year or taxable period ending
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56
on or before the Closing Date, including, without limitation, any liability that
the Shareholders may owe as individuals in any jurisdiction in which the company
is treated as an S corporation. Any excise and franchise taxes due or payable as
a result of the Election (as hereinafter defined) shall be borne by the
Shareholders. For purposes of this Section 4.1, and as required in connection
with the Election, the current fiscal year of the Company will be treated as two
separate tax years, one beginning on January 1, 1998 and ending on the Closing
Date and the other beginning on the date after the Closing Date and ending at
the end of the 1998 fiscal year of the Company. The books and records of the
Company will be closed at the close of business on the Closing Date.
(B) The Parent, the Merger Sub, the Shareholders and the
Company agree to make a timely election under Section 338(h)(10) of the Code and
similar provisions of state and local law, where allowable, in respect of the
Merger (the "ELECTION"), thereby causing such Merger to be treated as a purchase
or sale of assets of the Company for federal purposes and to the extent allowed
by state, local and foreign tax laws. On all returns relating to Income Taxes,
the Shareholders and the Parent will report the transfers under this Agreement
consistent with the Election. Neither the Shareholders, the Parent nor the
Company will take a position on a return relating to Income Taxes contrary to
the Election unless required to do so by applicable state, local or foreign tax
laws or pursuant to a determination as defined in Section 1313(a) of the Code.
Each of the parties shall take any action required to effect state, local and
foreign tax law conformity with application of the Election to the extent
allowed by law.
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(C) The Parent and the Merger Sub, the Shareholders and the
Company acknowledge and agree that the Purchase Price (as defined in Section 2.1
above) reflects the fact that the Shareholders will incur substantial tax
obligations as a result of the Merger, and the tax treatment of such Merger as a
deemed sale of all of the assets of the Company; other than as defined in this
Section 4.1, the Parent and the Merger Sub shall have no further obligations and
make no further payments to the Company relating to any and all tax liabilities
incurred by the Company or the Shareholders as a result of the Merger, or the
Election, or relating to any current or deferred tax liabilities of the Company
or the Shareholders arising on or prior to the Closing Date.
(D) In connection with the Election, not later than 150 days
after the Closing Date, the Parent and the Sellers' Representative shall act
together in good faith to (i) determine and jointly agree upon the "MODIFIED
AGGREGATE DEEMED SALES PRICE" of the assets of the Company (within the meaning
of, and in accordance with, Treasury Regulations Section 1.338(h)(10)-1(f) or
comparable provisions for state, local and foreign law) (the "MADSP
DETERMINATION"), and (ii) determine and jointly agree upon the allocations of
the "MODIFIED AGGREGATE DEEMED SALES PRICE" in accordance with Section 338(b)(5)
of the Code and Treasury Regulations Section 1.338(b)-2T promulgated thereunder
(and comparable provisions for state, local and foreign law) (the "MADSP
ALLOCATIONS"). If the parties are unable to agree within such period, the MADSP
Determination and MADSP Allocations provided for under clauses (i) and (ii)
shall be determined within 30 days thereafter by an independent qualified
appraiser selected by the Parent and reasonably acceptable to the Seller's
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Representative (the "APPRAISER"), the costs of which shall be borne by the
Parent. The Parent, the Sellers and the Shareholders shall (w) be bound by the
joint MADSP Determination and MADSP Allocations (whether agreed upon or
determined by the Appraiser) for purposes of determining any Taxes, (x) prepare
and file their Tax Returns on a basis consistent with such MADSP Determination
and MADSP Allocations, (y) take no position inconsistent with such MADSP
Determination and MADSP Allocations on any applicable Tax Return, in any
proceeding before any taxing authority or otherwise and (z) immediately
following the MADSP Determination and MADSP Allocations (whether agreed upon or
determined by the Appraiser), exchange completed and duly executed copies of
Internal Revenue Service Form 8023, required schedules thereto, and any similar
state, local or foreign forms computed to reflect such MADSP Determination and
MADSP Allocations (whether agreed upon or determined by the Appraiser).
4.2 Tax Return Filing. (a) The Company and the Shareholders shall
cause the Company and each of the Subsidiaries to prepare, in a manner
consistent with past practices, and timely file (including extensions of time to
file) all Tax Returns required to be filed by the Company and each of the
Subsidiaries, the due date of which (without extensions) occurs on or before the
Closing Date and pay all Taxes due with respect to any such Tax Returns.
(b) The Surviving Corporation will prepare any Tax Returns due
to be filed by the Company after the Closing Date but relating to periods of
time prior to the Closing Date, with the understanding that such Tax Returns
will be subject to the approval of the Parent and the Sellers' Representative
prior to filing.
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(c) The Shareholders will take whatever action is necessary to
maintain the S status of the Company for federal purposes and for the purposes
of the states listed in Section 3.1(Q)(xiv) above through the Closing Date,
including as a result of the Election.
(d) Except in connection with the Election, the Shareholders
will not cause the Company to make any additional federal tax elections under
the Code with respect to the Company for any tax period ending after the Closing
Date.
4.3 Further Assurances. At any time and from time to time after the
Closing, each of the parties agree to cooperate with each other and to execute
and deliver such other documents, instruments of transfer or assignment, files,
books and records and do all such further acts and things as may be reasonably
required to carry out the transactions contemplated hereunder.
4.4 Access to Records. Prior to the Closing Date, each of the
Parent and the Merger Sub shall be entitled, through its employees and
representatives, including, without limitation, Paul, Weiss, Rifkind, Wharton &
Garrison and accountants, to make such investigation of the assets, properties,
business and operations of the Company and the Subsidiaries, and such
examination of the books, records and financial condition of the Company and the
Subsidiaries as the Parent or Merger Sub wishes. Any such investigation and
examination shall be conducted at reasonable times after providing reasonable
prior notice and under reasonable circumstances and the Company and each Seller
shall, and shall cause the Company and each of the Subsidiaries to, cooperate
reasonably therewith. No investigation by the Parent or Merger Sub shall
diminish or obviate any of the
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representations, warranties, covenants or agreements of the Company and each
Seller contained in this Agreement. In order that the Parent and the Merger Sub
may have the opportunity to make such business, accounting and legal review,
examination or investigation as they may wish of the business and affairs of the
Company and the Subsidiaries, the Company and the Sellers shall furnish and
shall cause the Company and the Subsidiaries to furnish the representatives of
the Parent and the Merger Sub during such period with all such information and
copies of such documents concerning the affairs of the Company and the
Subsidiaries as such representatives may reasonably request, shall make
available, or cause the Company and the Subsidiaries to make available, such
officers and employees of the Company as such representatives reasonably
request, and shall cause its officers and employees to, and use reasonable
efforts to cause its consultants, agents, accountants and attorneys to cooperate
fully with such representatives in connection with such review and examination
and to make full disclosure to the Parent and the Merger Sub of all material
facts affecting the financial condition and business operations of the Company
and the Subsidiaries. Following the Closing, each party shall afford the other
and its authorized representatives access, during regular business hours after
providing reasonable prior notice, to any books and records of the Company and
the Subsidiaries to the extent they relate to a period prior to the Closing Date
that such party shall from time to time reasonably request. From the date
hereof, at the Parent or Merger Sub's request, each Seller shall give the Parent
or Merger Sub and its authorized representatives reasonable access, during
regular business hours after providing reasonable prior notice, to such Seller's
records related to the Company
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and/or the Subsidiaries located other than in the possession of the Company or
the Subsidiaries, and shall permit the Parent or Merger Sub to make a copy at
its expense of any such documents as the Parent or Merger Sub shall designate.
Notwithstanding anything to the contrary in this Section 4.4, neither the
Company nor any of the Subsidiaries shall be required to disclose any classified
information in violation of any applicable law.
4.5 Preservation of Records. Each of the Parent and the Merger Sub
agrees that it shall at its sole expense preserve and keep the records of the
Sellers, the Company and the Subsidiaries (including any successors thereto)
delivered to it hereunder for a period of no less than six years after the
close-out of each government contract or for such longer period as may be
required by any governmental agency or on account of on-going litigation, but
for no less than one year from the Closing Date and shall make such records
available to the Company and the Sellers as may be reasonably required by the
Company and the Sellers in connection with any legal proceedings against or
governmental investigations of the Company and the Sellers or in connection with
any tax examination of the Company and the Sellers. In the event the Parent or
the Merger Sub wishes to destroy such records after that time, it shall first
give thirty (30) days' prior written notice to the Sellers' Representative and
the Sellers' Representative shall have the right at its option, upon prior
written notice given to the Parent or the Merger Sub within said thirty (30) day
period, to take possession of said records within sixty (60) days after the date
of the Sellers' Representative's notice to the Parent and the Merger Sub
hereunder. If the Sellers' Representative fails to take possession of said
records
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within such sixty (60) day period, the Parent or Merger Sub may destroy such
records.
4.6 Confidentiality. From and after the date of this Agreement
until the fifth anniversary of the Closing Date, in the event of the
consummation of the transaction contemplated hereby, each Seller shall keep any
and all information relat ing to the Company and the Subsidiaries, their
business operations and prospects (including, but not limited to, customer lists
and related information), services and know-how confidential and shall not
disclose such to any person; PROVIDED, HOWEVER, that such Seller may disclose
such information that (i) is or becomes publicly available other than by
disclosure by any Seller, the Sellers' Representative or any agent thereof, (ii)
such Seller is required to disclose by law, government regulation or court order
or in order to enforce the terms of this Agreement, but such Seller will give
the Parent and the Merger Sub adequate advance notice so that the Parent and the
Merger Sub may seek a protective order or take other reasonable actions to
preserve the confidentiality of such information, or (iii) is required in the
ordinary course of such Seller's duties as director, officer or employee of the
Company or the Surviving Corporation. In the event that the transactions
contemplated hereby are not consummated, the terms of the Confidentiality
Agreement, dated December 17, 1997, between the Company and the Parent (the
"CONFIDENTIALITY AGREEMENT") shall continue to apply in full force and effect
for a period of five years subsequent to the date thereof.
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4.7 Efforts; Consents. The Parent, the Merger Sub, the Company and
each Seller agree to use all reasonable efforts to take or cause to be taken all
actions necessary, proper or advisable to consummate the transactions
contemplated in this Agreement. The Parent, the Merger Sub, each Seller and the
Company also agree to make a good faith effort to consummate and close the
transactions contemplated in this Agreement by June 1, 1998. Without limiting
the generality of the foregoing, each of the parties hereto shall use all
reasonable efforts to obtain the authorizations, consents, orders and approvals
of federal, state, and local regulatory bodies and officials that may be or
become necessary for the performance of its obligations pursuant to this
Agreement and the consummation of the transactions contemplated hereby and will
cooperate fully in promptly seeking to obtain such authorizations, consents,
order and approvals as may be necessary for the performance of their respective
obligations pursuant to this Agreement. Each of the Parent and the Merger Sub
will not take any action which will have the effect of delaying, impairing or
impeding the receipt of any required regulatory approvals and will use its best
efforts to secure such approvals as promptly as possible.
4.8 Return of Information and Confidentiality. The terms of the
Confidentiality Agreement are herewith incorporated by reference and shall
continue in full force and effect until the Closing. In the event the Closing
under this Agreement does not occur in accordance with the terms hereof for any
reason, the Parent and the Merger Sub shall immediately return to the Company
all written information (and all copies thereof) regarding the Company and the
Subsidiaries, obtained from the Company or the Sellers by the Parent and the
Merger Sub in the
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course of investigating the Merger, or negotiating this Agreement or delivered
to them pursuant to this Agreement, and the terms of the Confidentiality
Agreement shall continue to apply in full force and effect for a period of five
years subsequent to the date thereof.
4.9 Ordinary Course of Business. From the date hereof until the
Closing Date, unless otherwise agreed to by the Parent and the Merger Sub, the
Company and each Seller agree that they shall cause the Company and each of the
Subsidiaries to conduct their business and operations in the ordinary course and
in substantially the same manner in which the same have heretofore been
conducted and not to undertake any of the actions specified in Section 3.1(F).
4.10 Insurance Proceeds, Litigation Rights. In the event that any
pro perty owned or leased by the Company or any of the Subsidiaries suffers any
material damage, destruction or other casualty loss, and the Closing occurs in
accordance with the terms hereof, the Shareholders shall surrender to the
Company, the Subsidiaries, the Parent and the Merger Sub (i) all insurance
proceeds received by any of the Shareholders with respect to such damage or loss
and (ii) all rights of the Shareholders with respect to any causes of action,
whether or not litigation has commenced on the Closing Date, in connection with
such damage or loss. Nothing in this Section 4.10 shall be construed to limit or
prejudice the Parent or the Merger Sub's rights and remedies under this
Agreement, including, without limitation, the Parent or the Merger Sub's right
not to consummate the transactions contemplated hereby if all of the conditions
set forth in Section 5.2 are not satisfied or waived, in the sole discretion of
the Parent and the Merger Sub.
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4.11 Benefit Plans and Employee Matters. (A) From and after the
Closing Date, the Parent shall cause the Surviving Corporation and each of the
Subsidiaries to (i) provide all salaried employees of the Company and each of
the Subsidiaries as of the Closing Date ("COMPANY EMPLOYEES") with service
credit for all periods of employment with the Company or the Subsidiaries prior
to the Closing Date for purposes of satisfying any service requirements for
early retirement under any defined contribution plan in effect on the date
hereof or under any substantially similar replacement plan adopted by Parent,
the Surviving Corporation, the Subsidiaries or any of their affiliates (or any
successor entity to any of the foregoing) with respect to Company Employees and
(ii) waive any pre-existing condition of any Company Employee for purposes of
determining eligibility for, and the terms upon which they participate in, any
welfare plan with respect to which Company Employees participate (other than
conditions that are already in effect with respect to such employees under the
Company's or the Subsidiaries' welfare plans that have not been satisfied as of
the Closing Date).
(B) The Parent hereby agrees that from and after the Closing Date,
it will cause the Surviving Corporation and the Subsidiaries to continue in full
force and effect all the Plans (as defined in Section 3.1(M) above and as set
forth on Schedule 3.1(M) hereto), until such date as it will convert or
transition such Plans to its own benefit programs, which date will be on or
before January 1, 1999. Prior to such conversion or transition, the Parent will
contribute (or cause the Surviving Corporation and the Subsidiaries to continue
to contribute) all required contributions and pay all required premiums under
such Plans; PROVIDED, HOWEVER, that nothing in
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this Agreement shall be construed to limit the ability of the Parent or the
Surviving Corporation to modify, amend or terminate any benefits of any
individual, or terminate the employment of any individual, at any time after the
Closing Date or, after January 1, 1999, any Plan.
(C) Joseph Maurelli and other members of the senior management of
the Company shall during their employment by the Surviving Corporation be
entitled to participate in the Parent's or the Surviving Corporation's
management incentive programs (including the annual incentive compensation
program) on the same basis as other senior executives of the Parent and its
subsidiaries, subject (except as set forth below) to the discretion of the board
of directors of the Parent (the "PARENT'S BOARD"). The Parent shall, at the next
regular meeting of the Parent's Board, which is currently scheduled to occur no
later than July 24, 1998, grant options under and subject to the Anteon
Corporation Omnibus Stock Plan (the "PARENT OPTION PLAN") to purchase at least
fifty thousand shares, in the aggregate, of the Parent's common stock to Joseph
Maurelli and other members of the Company's senior management to be designated
by the Company on or before the Closing Date subject to the execution by the
grantees of the Parent's customary option agreement, it being the understanding
that such grants shall be made on terms consistent in all material respects with
the Parent's past practice.
(D) The chief executive officer of the Parent shall recommend to
the Board of Directors of the Parent (or an appropriate committee thereof) that
the Parent grant under the Parent Option Plan, to employees of the Surviving
Corporation other than Joseph Maurelli, options to purchase at least 12,500
shares of Parent's common
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stock no later than the first anniversary of the Closing Date and 12,500 shares
of Parent's common stock no later than the second anniversary of the Closing
Date, it being understood that such issuance and the terms of issuance are
subject to the discretion of the Parent's Board (or an appropriate committee
thereof).
(E) The Parent agrees that Joseph Maurelli shall be elected a
member of the Parent's Board, to serve at the pleasure of the Parent's
shareholders, at the first regular meeting of the Parent's Board after the
Closing Date which is currently scheduled to occur no later than July 24, 1998.
4.12 Preservation of Business. From the date hereof through the
earlier of the Closing Date or the termination of this Agreement in accordance
with its terms, the Company and the Sellers shall use reasonable efforts to
cause the Company and the Subsidiaries to preserve their respective business
organizations intact, keep available the services of their respective present
officers, employees, consultants and agents, maintain their respective present
suppliers and customers.
4.13 Litigation. From the date hereof through the Closing Date, the
Company and the Sellers shall cause the Company to notify promptly the Parent
and the Merger Sub of any actions or proceedings of the type described in
Section 3.1(G) that from the date hereof are commenced or, to the Knowledge of
any Seller, the Company or any of the Subsidiaries, threatened against the
Company or any of the Subsidiaries, against any officer, director, employee,
consultant, agent, shareholder or other representative of the Company or any of
the Subsidiaries with respect to their affairs. From the date hereof to the
Closing Date, the Parent shall promptly notify
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the Company of any litigation that could be reasonably expected to cause a
Parent Material Adverse Effect.
4.14 Agreements. From the date hereof through the Closing Date, the
Company and the Sellers shall cause the Company and the Subsidiaries to notify
the Parent and the Merger Sub promptly of any evidence that any party to a
contract or other agreement listed in Schedule 3.1(O) has terminated or failed
to renew or intends to terminate or fail to renew any such contract or agreement
or that any party has asserted or intends to assert any claim under any such
contract or agreement.
4.15 Continued Effectiveness of Representations and Warranties.
From the date hereof through the Closing Date, the Company and the Sellers shall
cause the Company and each of the Subsidiaries to conduct their businesses in
such a manner so that the representations and warranties contained in Section
3.1 shall continue to be true and correct to the extent required to satisfy
Section 5.2(B) on and as of the Closing Date as if made on and as of the Closing
Date, and each of the Parent and the Merger Sub shall conduct its respective
business in such a manner so that the representations and warranties contained
in Section 3.2 shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date, and all of the Sellers shall
conduct their affairs in such a manner so that the representations and
warranties contained in Section 3.1 shall continue to be true and correct on and
as of the Closing Date as if made on and as of the Closing Date, and each party
shall promptly give notice to the other parties of any event, condition or
circumstance occurring from the date hereof through the Closing Date that would
constitute a violation or breach by it or the other parties hereto of this
Agreement.
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4.16 Satisfaction of Conditions Precedent. During the term of the
Agreement, the parties hereto will use reasonable efforts to satisfy (or cause
to be satisfied) all the conditions precedent to their respective obligations.
4.17 Exclusivity. As an inducement to the Parent and the Merger Sub
to enter into this Agreement, and in consideration of the time and expense which
they have devoted and will devote to the transactions contemplated hereby during
such period, subsequent to the execution of this Agreement and until the earlier
of (i) the Closing Date; and (ii) the termination of this Agreement in
accordance with Article VII, none of the Sellers nor the Company nor any of
their respective representatives (including, without limitation, any investment
banker, attorney or accountant retained or acting on behalf of the Company, any
Seller or any Shareholder, director, officer or employee of the Company) will,
directly or indirectly, (i) initiate, solicit, encourage or respond to any
inquiry or proposal with respect to a merger, consolidation, share exchange,
business combination, liquidation, dissolution or sale of all or a portion of
the assets of the Company or any of the Subsidiaries outside the Ordinary Course
of Business or any purchase of any of the outstanding shares of its capital
stock (an "ACQUISITION PROPOSAL"), or (ii) enter into any discussions,
negotiations or agreements concerning an Acquisition Proposal with, or disclose
any information concerning the Company or any of the Subsidiaries, their
businesses or properties or afford any access to their properties, books and
records to, or otherwise assist or facilitate any effort relating to an
Acquisition Proposal, by any corporation, individual, partnership, company,
association, trust, person or other entity or group (a "PERSON"). The Sellers,
the Company and the Subsidiaries will
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immediately cease any existing discussions with any Persons concerning any
Acquisition Proposal.
4.18 Allocation of Certain Expenses of Parent. The Parent, the
Company and the Sellers acknowledge and agree that following the Closing, the
Parent will allocate a portion of its home office general and administrative and
overhead expenses to the Company (the "HOME OFFICE EXPENSE ALLOCATION"). The
Home Office Expense Allocation will be calculated in accordance with the
Parent's past practice in conformity with applicable regulations and is
currently anticipated to be approximately $2,000,000, subject to possible
adjustment in accordance with all applicable facts and circumstances and
Parent's cost accounting practices as disclosed to the federal government. The
Parent will consult with the appropriate personnel of the Surviving Corporation
in preparing applicable cost accounting disclosure statements to be furnished by
Parent to the federal government. The Company and the Parent anticipate that
such Home Office Expense Allocation will be passed through to the customers of
the Surviving Corporation and/or offset by indirect cost reductions from the
Surviving Corporation, subject to applicable government cost accounting
standards.
4.19 Certain Covenants of the Parent.
(A) The Parent agrees that from and after the Closing Date
until June 30, 1999, the Parent shall cause the Surviving Corporation to
maintain a financial reporting system that will be sufficient to permit a firm
of independent accountants to determine the Operating Profit of the Company and
its Subsidiaries, and consequently, the amount of Contingent Consideration
payable, if any, pursuant
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to Section 2.8. If after the Closing Date until June 30, 1999, any contracts of
the Company or its Subsidiaries are transferred, assigned, or otherwise
allocated or attributed, for financial reporting purposes, to the Parent or any
of its other subsidiaries (other than the Company and/or its Subsidiaries), then
equitable and reasonable adjustments shall be made in calculating the Operating
Profit of the Company and its Subsidiaries, and consequently, the amount of
Contingent Consideration payable, if any, to eliminate the effect of any
transfer, assignment, allocation or attribution, and no such transfer,
assignment, allocation or attribution shall be made unless the financial
reporting system referred to in the immediately preceding sentence is capable of
tracking the performance of distinct contracts in a manner that will permit such
determination of the Operating Profit of the Company and its Subsidiaries, and
consequently, of the amount of Contingent Consideration payable pursuant to the
terms of this Agreement. If after the Closing Date until June 30, 1999, any
contracts of the Parent or its subsidiaries (other than the Company and its
Subsidiaries) are transferred, assigned, or otherwise allocated or attributed,
for financial reporting purposes, to the Company or its Subsidiaries, then
equitable and reasonable adjustments shall be made in calculating the Operating
Profit of the Company and its Subsidiaries, and consequently, the amount of
Contingent Consideration payable, if any, to eliminate the effect of any
transfer, assignment, allocation or attribution and no such transfer,
assignment, allocation or attribution shall be made unless the financial
reporting system referred to in the immediately preceding sentence is capable of
tracking the performance of distinct contracts in a manner that will permit such
determination of the Operating Profit of the Company
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and its Subsidiaries, and consequently, of the amount of Contingent
Consideration payable pursuant to the terms of this Agreement. All actions taken
by the Parent during the period covered by this Section 4.19(A) shall be in good
faith and not for the purpose of reducing the amount of Contingent Consideration
payable pursuant to the terms of this Agreement.
(B) The Company and the Sellers acknowledge that from and
after the date hereof until June 30, 1999, the Parent intends to (i) continue to
maintain management reserves of the Surviving Corporation and the Subsidiaries
where probable liabilities exist; (ii) cause the Surviving Corporation to comply
with GAAP consistent with the Company's past practices; and (iii) cause the
Surviving Corporation continue to maintain any and all reserves necessary to
comply with GAAP consistent with the Company's past practices, and to meet the
overall reasonable business needs of the Surviving Corporation and the
Subsidiaries during such period.
(C) The Parent shall cause the Surviving Corporation to be
operated as a wholly-owned subsidiary until June 30, 1999, at the earliest. The
Parent agrees that from the Closing Date until June 30, 1999, it shall not
terminate or permit the Surviving Corporation to terminate the employment of
Joseph Maurelli unless such termination is made for cause as defined in his
current employment agreement with the Company, without regard to the future
efficacy of such agreement.
(D) The Parent agrees that from the Closing Date until
December 31, 1998, it will allow to continue in effect the Executive Employment
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Agreements in effect on the Closing Date of the following employees of the
Company: Joseph Maurelli, Walter S. Szczypinski, Jr., Deborah Alderson, William
Reese, William Baker, James Sullivan, Michael Maraghy, Michael McMillan, Jeremy
Nittle, Jack Youngworth and Edward Masso (letter agreement).
(E) Obligations of Merger Sub. The Parent will take all action
necessary to cause the Merger Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
4.20 Shareholder Approval. Each Seller hereby consents to the
Merger and agrees that at any meeting (whether annual or special, and whether or
not an adjourned or postponed meeting) of the Shareholders, however called, or
in connection with any written consent of the Shareholders, each Seller shall
vote (or cause to be voted) all shares of Common Stock owned or controlled by
such Seller: (i) in favor of the Merger, the execution and delivery by the
Company of this Agreement and the approval and adoption of the Merger and the
terms thereof and each of the other actions contemplated by this Agreement and
any actions required in furtherance hereof and (ii) against any action or
agreement that would impede, interfere with, or prevent the Merger. No Seller
shall enter into any agreement, arrangement or understanding with any Person the
effect of which would be inconsistent or violative of the provisions and
agreements contained herein.
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ARTICLE V
CONDITIONS TO CLOSING
5.1 Conditions to Obligations of the Company. The obligations of
the Company to consummate the Merger hereunder are, at its option, subject to
the fulfillment or waiver, prior to or on the Closing Date, of each of the
following conditions:
(A) Regulatory Authorizations. All authorizations, consents,
orders and approvals of federal and state regulatory bodies and officials
necessary for the consummation by the Company of the Merger hereunder shall have
been obtained, and there shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transaction contemplated herein, or
any of them, not be consummated (collectively, an "ORDER").
(B) Representations and Warranties; Covenants. The
representations and warranties of the Parent and the Merger Sub contained in
this Agreement and in any certificate delivered by any officer of the Parent or
the Merger Sub pursuant hereto that are not qualified by materiality or a Parent
Material Adverse Effect requirement shall be true and correct in all material
respects and the representations and warranties that are qualified by
materiality or a Parent Material Adverse Effect requirement (or similar
concepts) shall be true and correct; in each case, at the date hereof and at and
as of the Closing Date, with the same force and effect as if made at and as of
the Closing Date; and the Parent and the Merger Sub shall have performed or
complied with the agreements and covenants required by this
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Agreement to be performed or complied with by them on or prior to the Closing
Date.
(C) Certificates. The Parent and the Merger Sub shall have
delivered to the Company and the Sellers certificates, dated the Closing Date,
of officers of the Parent and the Merger Sub to the effect that the conditions
specified in paragraphs (A) and (B) of this Section 5.1 have been satisfied.
(D) Opinions of Counsel to the Parent and the Merger Sub. The
Company and the Sellers' Representative shall have received the opinions of
Curtis L. Schehr and Paul, Weiss, Rifkind, Wharton & Garrison, general counsel
and special counsel, respectively, to the Parent and the Merger Sub, dated the
date of the Closing, addressed to the Company and the Sellers, in the form of
Exhibit IV.
(E) Expiration of Required Notice Period. Any notice period
required to be provided to holders of the Company's nonvoting Common Stock under
the VSCA shall have expired.
5.2 Conditions to Obligations of the Parent and the Merger Sub. The
obligations of the Parent and the Merger Sub to consummate the Merger hereunder
are subject, at their option, to the fulfillment or waiver, prior to or on the
Closing Date, of each of the following conditions:
(A) Regulatory and other Authorizations. All authorizations,
consents, orders and approvals of federal and state and regulatory bodies and
officials necessary for the performance by the Parent and the Merger Sub of this
Agreement and the consummation of the Merger hereunder shall have been obtained
and there shall be no Order in effect.
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(B) Representations and Warranties; Covenants. The
representations and warranties of the Company and each Seller contained in this
Agreement and in any certificate delivered by any officer of the Company or any
Seller pursuant hereto that are not qualified by materiality or a Company
Material Adverse Effect requirement shall be true and correct in all material
respects and the representations and warranties that are qualified by
materiality or a Company Material Adverse Effect requirement (or similar
concepts) shall be true and correct, in each case, at the date hereof and at and
as of the Closing Date, with the same force and effect as if made at and as of
the Closing Date, and the Company and the Sellers shall have performed or
complied with the agreements and covenants required by this Agreement (including
without limitation the agreements set forth in Section 2.4) to be performed or
complied with by them on or prior to the Closing Date.
(C) Governmental Permits and Approvals. All Permits required
for the lawful consummation of the Closing shall have been obtained and be in
full force and effect, and the Parent and the Merger Sub shall have been
furnished with evidence reasonably satisfactory to them that such Permits have
been granted and obtained.
(D) Third Party Consents. All consents, permits and approvals
from parties to contracts or other agreements with the Company, the Subsidiaries
or with any Seller that may be required in connection with the performance by
the Company and any Seller of their obligations under this Agreement or the
continuance of such contracts or other agreements with the Company or the
Subsidiaries after the Closing shall have been obtained and be in full force and
effect,
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and the Parent and the Merger Sub shall have been furnished with evidence
reasonably satisfactory to them that such consents, permits and approvals have
been granted and obtained.
(E) Opinion of Counsel to the Company and the Sellers. The
Parent and the Merger Sub shall have received the opinion of Venable, Baetjer
and Howard, LLP, counsel to the Company and the Sellers, dated the date of the
Closing, addressed to the Parent and the Merger Sub, in the form attached as
Exhibit V.
(F) Non-Competition. At the Closing, each of the following
Sellers shall have executed and delivered a non-compete and non-disclosure
agreement in substantially the form attached as Exhibit VII: Joseph Maurelli,
Deborah Alderson, James Sullivan and Michael McMillan.
(G) Certificate. The Company and the Sellers shall have
delivered to the Parent and the Merger Sub a certificate, dated the Closing
Date, to the effect that the conditions specified in paragraphs (A) through (D)
of this Section 5.2 have been satisfied.
(H) Payoff Letter. The Company and the Sellers shall have
delivered payoff letters or other documentation from First Virginia Bank ("FVB")
(and any other holder of Debt of the Company or the Subsidiaries) reasonably
satisfactory to the Parent evidencing the termination of the Company's line of
credit facility with FVB and the release of liens thereunder against payment of
the Debt.
(I) VEBA Funding. The Company shall have delivered evidence
reasonably satisfactory to the Parent demonstrating that the Company's
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VEBA trust has been fully funded as of the Closing Date consistent with the
Company's past practice and contains not less that $300,000 in cash reserves.
ARTICLE VI
FEES RELATING TO THIS TRANSACTION
Except for the commission and fees of the persons set forth on
Schedule 6.0 which, subject to Section 9.3, will be paid by the Shareholders and
the Option Holders through pro rata reduction of the Purchase Price and amounts
payable under Sections 2.3 and 2.4, the Company and the Sellers represent and
warrant to the Parent and the Merger Sub that no broker, finder, agent or
similar intermediary has acted on behalf of the Company, any of the Subsidiaries
or any Shareholder in connection with this Agreement or the transactions
contemplated hereby, and that there are no brokerage commissions, finders' fees
or similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with the Company, any of the
Subsidiaries or any Shareholder, or any action taken by the Company, any of the
Subsidiaries or any Shareholder. The Parent and the Merger Sub represent and
warrant to the Sellers that no broker, finder, agent or similar intermediary has
acted on behalf of the Parent or the Merger Sub in connection with this
Agreement or the transactions contemplated hereby, and that there are no
brokerage commissions, finders' fees or similar fees or commissions payable in
connection therewith based on any agreement, arrangement or understanding with
the Parent or the Merger Sub or any action taken by the Parent or the Merger
Sub. Each such party (the Parent and the Merger Sub on the one hand
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and the Company and each Seller on the other) agrees to indemnify and save the
other harmless from any claim or demand for commission or other compensation by
any broker, finder, agent or similar intermediary claiming to have been employed
by or on behalf of the Parent and the Merger Sub, on the one hand, or the
Company, any of the Subsidiaries or any Shareholder, on the other, and to bear
the cost of legal expenses incurred in defending against any such claim.
ARTICLE VII
TERMINATION
7.1 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated prior to the Closing as follows:
(a) by the mutual written consent of the parties to this
Agreement;
(b) by the Company or the Parent, by notice to the other, if,
for any reason, the Closing has not occurred prior to the close of business on
June 5, 1998;
(c) at the election of the Company, if the Parent or the
Merger Sub has breached any representation, warranty, covenant or agreement
contained in this Agreement that is qualified by materiality or a Parent
Material Adverse Effect requirement (or similar concepts), or if the Parent or
the Merger Sub has breached in any material respect any representation,
warranty, covenant or agreement contained in this Agreement that is not so
qualified, which breach has not
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been cured on or prior to thirty (30) days following delivery of written notice
of such breach by the Company to the Parent or the Merger Sub;
(d) at the election of the Parent or the Merger Sub, if any
Seller or the Company has breached any representation, warranty, covenant or
agreement contained in this Agreement that is qualified by materiality or a
Company Material Adverse Effect requirement (or similar concepts), or if any
Seller or the Company has breached in any material respect any representation,
warranty, covenant or agreement contained in this Agreement that is not so
qualified, which breach has not been cured on or prior to thirty (30) days
following delivery of written notice of such breach by the Parent or the Merger
Sub to the Sellers' Representative;
(e) at the election of the Company on the one hand or the
Parent or the Merger Sub on the other, if any legal proceeding is commenced or
threatened by any Governmental Body directed against the consummation of the
Closing or any other transaction contemplated under this Agreement and the
Company or the Parent or the Merger Sub (as the case may be) reasonably and in
good faith deems it impractical or inadvisable to proceed in view of such legal
proceeding or threat thereof.
If this Agreement so terminates, it shall become null and void and
have no further force or effect except as provided in Section 7.2.
7.2 Effect of Termination; Expenses. In the event of the
termination of this Agreement pursuant to Section 7.1, this Agreement shall
thereafter become void and have no further force or effect except as provided in
Sections 4.6 and 4.8. Except as provided herein, none of the parties hereto
shall have any liability
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in respect of the termination of this Agreement except to the extent that
failure to satisfy the conditions of Section 5 results from the violation of the
representations, warranties, covenants or agreements of such party under this
Agreement, in which case the termination of this Agreement will not prejudice
any legal rights of any party whether those rights arise under this Agreement or
otherwise.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Sellers. The Sellers agree to indemnify,
defend and hold harmless in the manner and subject to the limitations and
qualifications set forth in this Article VIII the Parent, the Merger Sub and the
Surviving Corporation (and their respective directors, officers, employees,
affiliates, successors and assigns) (collectively, the "PURCHASER PARTIES")
against and hold the Purchaser Parties harmless from and in respect of any and
all losses, liabilities, damages, deficiencies, costs, expenses (including,
without limitation, expenses of investigation and defense and reasonable fees,
disbursements and expenses of counsel incurred by the Purchaser Parties in any
action or proceeding between the Purchaser Parties and the Sellers or between
the Purchaser Parties and any third party or otherwise), claims, liens or other
obligations of any nature whatsoever (collectively, "LOSSES") based upon,
arising out of, or otherwise in respect of or which may be incurred by virtue of
or result from (a) the inaccuracy in or breach of any representation, warranty,
covenant or agreement made by or on behalf of the Sellers or the Company in this
Agreement or in any document or instrument delivered at the
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Closing pursuant hereto, (b) any claim of any nature, including, without
limitation, any claim for appraisal or dissenters' rights, by any Shareholder or
Option Holder arising out of or in connection with this Agreement or the Merger
(other than claims for payments under Article II of this Agreement); or (c)
enforcing the indemnification provided for hereunder. The Sellers shall have no
right to seek contribution from the Company or any of the Subsidiaries with
respect to all or any part of any of the Sellers' indemnification obligations
under this Section 8.1.
8.2 Indemnification by the Parent and the Merger Sub. The Parent
and the Merger Sub agree to indemnify the Sellers against and hold each Seller
harmless from and in respect of any and all Losses which may be incurred by
virtue of or result from (a) the inaccuracy in or breach of any representation,
warranty, covenant or agreement made by or on behalf of the Parent or the Merger
Sub in this Agreement or in any document or instrument delivered at the Closing
pursuant hereto, excluding, in all events, the representations and warranties
set forth in Section 3.2(E) and (F), which shall not survive the Closing, (b)
the conduct of the Company and the Subsidiaries after the Closing or (c)
enforcing the indemnification provided for hereunder.
8.3 ERISA, Tax and Contract Supplemental Indemnification by Each
Seller.
(a) Supplemental ERISA Indemnification. Each Seller agrees to
indemnify and hold harmless the Purchaser Parties with respect to any Losses
incurred by any of the Purchaser Parties arising out of or otherwise in respect
of any Plan that is not disclosed in Schedule 3.1(M). Notwithstanding anything
to the
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contrary in Section 8.4, all indemnification obligations in this Section 8.3(a)
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, and shall not be subject to any time or
dollar limitation.
(b) Supplemental Tax Indemnification. Each Seller shall
indemnify the Purchaser Parties for all Taxes which the Sellers are responsible
to pay pursuant to Section 4.1 hereof and for any liability for any Taxes
imposed on the Company or the Subsidiaries pursuant to federal, state, local or
foreign law attributable to any periods ending on or before the Closing Date (or
for the portion of any period up through the Closing Date to the extent a period
does not close on such date). Any indemnity payments to or from the Sellers or
to or from the Parent and the Merger Sub pursuant to this Agreement, whether
under this Section 8.3(b) or otherwise, shall be treated by the Parent and the
Merger Sub and the Sellers as purchase price adjustments for all tax purposes.
All indemnification obligations set forth in this Section 8.3(b) shall be
treated as Tax Claims for purposes of the survival provisions of Section 8.4 and
shall not be subject to any dollar limitation.
(c) Supplemental Contract Indemnification. Each Seller agrees
to indemnify and hold harmless the Purchaser Parties, from and with respect to
any and all Losses in excess of a reserve of $825,000 in the aggregate incurred
by any of the Purchaser Parties arising out of, or otherwise in respect of, (i)
any government disallowance of incurred Direct Contract Costs and/or Indirect
Costs including, without limitation, any Losses arising out of Defense Contract
Audit Agency incurred cost audits of the Company for fiscal years 1989 through
1997;
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(ii) Losses arising out of any contract listed in Exhibit VII, which Losses
relate to the reduction of fee as a result of the Company failing to deliver to
the other contracting party the number of labor hours specified in such
contract; and (iii) Losses arising out of or relating to the NCIS investigation
disclosed on Schedule 3.1(G). All indemnification obligations in this Section
8.3(c) shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby until the fourth
anniversary of the Closing Date and shall be subject to the limitations on
indemnification set forth in Section 8.5(c).
8.4 Survival of Representations and Warranties of the Sellers.
Notwithstanding any right of the Parent and the Merger Sub to investigate the
affairs of the Company and the Subsidiaries and notwithstanding any knowledge of
facts determined or determinable by the Parent and the Merger Sub pursuant to
such investigation or right of investigation, the Parent and the Merger Sub have
the right to rely fully upon the representations and warranties of each of the
Sellers contained in this Agreement. All representations and warranties of the
parties hereto contained in this Agreement shall survive the execution and
delivery hereof and the Closing hereunder, and except for (a) the
representations and warranties made in Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D),
3.2(A) and 3.2(B), which shall survive until the expiration of the applicable
statute of limitations with respect to any claim arising from any inaccuracy in
or breach thereof, (b) the representations and warranties set forth in Sections
3.1(M) and 3.1(Q) which shall constitute Tax Claims under this Section 8.4, (c)
the representations and warranties set forth in Section 3.1(R)(b) which shall
constitute Environmental Claims and (d) the representations and warranties in
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Sections 3.2(E) and 3.2(F) which shall not survive the Closing, (i) shall
thereafter terminate and expire twenty-four months following the Closing Date,
with respect to any General Claim (as hereinafter defined) based upon, arising
out of or otherwise in respect of any fact, circumstance, action or proceeding
of which the party asserting such claim shall have given no notice on or prior
to the expiration of such twenty-four month period, to the party against which
such General Claim is asserted, (ii) with respect to any Tax Claim (as herein
defined), on the later of (a) the date upon which the liability to which any
such Tax Claim may relate is barred by all applicable statutes of limitation and
(b) the date upon which any claim for refund or credit related to such Tax Claim
is barred by all applicable statutes of limitations, and (iii) with respect to
any Environmental Claim (as herein defined), on the fourth anniversary of the
Closing Date. As used in this Agreement, the following terms have the following
meanings: (i) "GENERAL CLAIM" means any claim (other than a Tax Claim or an
Environmental Claim) based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any representation or warranty of any Seller
contained in this Agreement, (ii) "TAX CLAIM" means any claim based upon,
arising out of or otherwise in respect of any inaccuracy in or any breach of any
representation or warranty of any Seller contained in this Agreement related to
Taxes or any Plan (as defined in Section 3.1(M) hereof) and (iii) "ENVIRONMENTAL
CLAIM" means any claim based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any representation or warranty of any Seller
contained in Sections 3.1(G), 3.1(I), 3.1(K) or 3.1(R)(b) concerning
Environmental Law or principles of common law relating to pollution, protection
of the environment or
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health and safety. Except as otherwise expressly provided herein, the covenants
and agreements contained in this Agreement shall survive the execution and
delivery hereof and the consummation of the transactions contemplated hereby.
8.5 Certain Limitations on Indemnification Obligations.
(a) The Parent and the Merger Sub shall not be entitled to
receive any indemnification payments under Section 8.1 with respect to any
inaccuracy in or breach of any representation or warranty, except those based
upon, arising out of or otherwise in respect of Sections 3.1(A), 3.1(B), 3.1(C),
3.1(D), 3.1(M), 3.1(Q) and 3.1(S), (the "BASKET EXCLUSIONS"), until the
aggregate indemnification payments, exclusive of the Basket Exclusions, equal
$350,000 (the "BASKET AMOUNT"), whereupon the Parent and the Merger Sub shall be
entitled to receive in full indemnity payments in excess of the Basket Amount;
PROVIDED, HOWEVER, that (i) solely for purposes of determining whether the
amount of the Sellers' indemnification obligations exceed $350,000 in the
aggregate, a breach of the Sellers' representations or warranties (other than
the representations and warranties contained in Sections 3.1(F) (absence of
certain changes or events) and 3.1(R)(a) (Additional Representations)) shall be
determined without regard to any limitation or qualification as to materiality
set forth in such representation or warranty and (ii) the representations and
warranties in this Agreement respecting compliance with laws and Permits set
forth in Sections 3.1(I), 3.1(G), 3.1(K)(i)(d), 3.1(K)(i)(e), 3.1(K)(ii)(d),
3.1(K)(ii)(e) and 3.1(W) shall not be deemed to be inaccurate or breached with
respect to matters involving Losses under such Sections, taken as a whole, not
exceeding $10,000 individually unless such Losses exceed $50,000 in the
aggregate.
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(b) The Parent and the Merger Sub shall be entitled to receive
any indemnification payments in respect of the Basket Exclusions without regard
to the individual or aggregate amounts thereof and without regard to whether the
aggregate of all other indemnification payments shall have exceeded, in the
aggregate, the Basket Amount.
(c) The maximum amount of indemnification payments under (i)
under Section 8.1 with respect to any inaccuracy in or breach of a
representation or warranty (excluding those based upon, arising out of or
otherwise in respect of Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D), or 3.1(Q)),
(ii) under Section 8.1(c), and (iii) under Section 8.3(c), shall not exceed in
the aggregate, with respect to claims asserted on or prior to the second
anniversary of the Closing Date the aggregate amounts owed but until then not
due to be paid under the Notes and Section 2.8 and after the second anniversary
of the Closing Date shall not exceed $6,000,000. The amount of indemnification
payments under Section 8.1 based upon, arising out of or otherwise in respect of
breaches of Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D) or 3.1(Q) shall not exceed
the Purchase Price.
(d) The Parent and Merger Sub agree to first collect any
indemnification through set-off on a several basis against any amounts owed but
not paid under the Notes or Section 2.8 of this Agreement. All indemnification
obligations under this Article VIII or any other provision of this Agreement
shall be joint and several with respect to the Parent and the Merger Sub and
shall be several, but not joint, with respect to the Sellers; it being
understood that with respect to the Sellers, the term "several" means that each
Seller's indemnification obligation shall be
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limited to such Seller's pro rata share of the indemnification obligation of the
Sellers, with the understanding that pro rata shall be determined by the
respective amount of consideration payable to holders of Common Stock and
Options under Sections 2.3(a), (d), (e) and 2.4(b). Each holder of Common Stock
and Options who is not a Seller hereunder shall be responsible to provide
indemnification under this Agreement to the same extent as if such holder were a
Seller hereunder.
8.6 Defense of Claims. In the case of any claim for indemnification
under Section 8.1, 8.2 or 8.3 arising from a claim of a third party, an
indemnified party shall give prompt written notice to the indemnifying party of
any claim, suit or demand of which such indemnified party has knowledge and as
to which it may request indemnification hereunder. The failure to give such
notice shall not, however, relieve the indemnifying party of its indemnification
obligations except to the extent that the indemnifying party is actually harmed
thereby. The indemnifying party shall have the right to defend and to direct the
defense against any such claim, suit or demand, in its name and at its expense,
and with counsel selected by the indemnifying party unless such claim, suit or
demand seeks an injunction or other equitable relief against the indemnified
party; PROVIDED, HOWEVER, the indemnifying party shall not have the right to
defend or direct the defense of any such claim, suit or demand if it refuses to
acknowledge fully its obligations to the indemnified party or contests, in whole
or in part, its indemnification obligations therefor. If the indemnifying party
elects and is entitled to compromise or defend such claim, it shall within 30
days (or sooner, if the nature of the claim so requires) notify the indemnified
party of its intent to do so, and the indemnified party shall, at the
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expense of the indemnifying party, cooperate in the defense of such claim, suit
or demand. If the indemnifying party elects not to compromise or defend such
claim, fails to notify the indemnified party of its election as herein provided
or refuses to acknowledge or contests its obligation to indemnify under this
Agreement, the indemnified party may pay, compromise or defend such claim.
Except as set forth in the immediately preceding sentence, the indemnifying
party shall have no indemnification obligations with respect to any such claim,
suit or demand which shall be settled by the indemnified party without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld or delayed); PROVIDED, HOWEVER, that notwithstanding the
foregoing, the indemnified party shall not be required to refrain from paying
any claim which has matured by a court judgment or decree, unless an appeal is
duly taken therefrom and exercise thereof has been stayed, nor shall it be
required to refrain from paying any claim where the delay in paying such claim
would result in the foreclosure of a lien upon any of the property or assets
then held by the indemnified party or where any delay in payment would cause the
indemnified party material economic loss. The indemnifying party's right to
direct the defense shall include the right to compromise or enter into an
agreement settling any claim by a third party; PROVIDED that no such compromise
or settlement shall obligate the indemnified party to agree to any settlement
which requires the taking of any action by the indemnified party other than the
delivery of a release. Notwithstanding the indemnifying party's right to
compromise or settle in accordance with the immediately preceding sentence, the
indemnifying party may not settle or compromise any claim over the objection of
the other; provided, however, that
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consent to settlement or compromise shall not be unreasonably withheld. The
indemnified party shall have the right to participate in the defense of any
claim, suit or demand with counsel selected by it subject to the indemnifying
party's right to direct the defense. The fees and disbursements of such counsel
shall be at the expense of the indemnified party; PROVIDED, HOWEVER, that, in
the case of any claim, suit or demand which seeks injunctive or other equitable
relief against the indemnified party as to which the indemnifying party shall
not in fact have employed counsel to assume the defense of such claim, suit or
demand, the fees and disbursements of such counsel shall be at the expense of
the indemnifying party.
8.7 Non-Third Party Claims. Any claim which does not result in a
third party claim shall be asserted by a written notice to the other party or
parties. The recipient of such notice shall have a period of thirty days after
receipt of such notice within which to respond thereto. If the recipient does
not respond within such thirty days, the recipient shall be deemed to have
accepted responsibility for the Losses set forth in such notice and shall have
no further right to contest the validity of such notice. If the recipient
responds within such thirty days after the receipt of the notice and rejects
such claim in whole or in part, the party delivering shall be free to pursue
such remedies as may be available to it under contract or applicable law.
8.8 Set-off Rights. Each of the Sellers agrees that the Parent and
the Merger Sub shall have the right, but not the obligation (except as set forth
in Section 8.5(d)), to set-off against their payment obligations under Section
2.8 of this Agreement or the Notes the full amount of any Losses required to be
paid by such Seller pursuant to this Article VIII if such Losses are not
otherwise paid within 30
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days after the Parent or the Merger Sub has requested payment. If the Parent or
the Merger Sub elects to exercise its set-off rights hereunder against any
payment due to the Sellers under this Agreement, it will give to the Sellers'
Representative written notice of such election which includes the amount to be
set-off, and upon giving of such notice, the amount of cash payable by the
Parent, the Merger Sub or the Surviving Corporation to the Sellers under this
Agreement shall automatically be reduced by the amount set forth in such notice.
In the event there is a final deter mination by a court of competent
jurisdiction that the Parent, the Merger Sub or the Surviving Corporation was
not entitled to indemnification under this Article VIII with respect to the
set-off amount, the Parent, the Merger Sub or the Surviving Corporation shall
promptly thereafter repay to the Sellers all such amounts which are so
determined to have been incorrectly set-off, plus interest thereon at a rate per
annum equal to 7.5%, on the basis of a twelve-month year of thirty days each,
and which shall accrue from the date the Parent or the Merger Sub exercised its
right of set-off hereunder to the date of such repayment.
ARTICLE IX
MISCELLANEOUS
9.1 Certain Definitions. As used herein, the following terms shall
have the meanings herein specified (to be equally applicable to both the
singular and plural forms of the terms defined):
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"Business Day" means any day other than Saturday or Sunday or
any other day on which banks in the Commonwealth of Virginia are permitted or
obligated to be closed for business.
"Debt" means, as of any date, (without duplication) with
respect to any Person, any indebtedness outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (excluding, without limitation, any balances that
constitute trade payables) and shall also include, to the extent not otherwise
included (i) any capital lease obligations determined in accordance with GAAP,
(ii) obligations of Persons other than such Person secured by a lien to which
the property or assets owned or held by such Person is subject, whether or not
the obligation or obligations secured thereby shall have been incurred or
assumed by such Person, (iii) all indebtedness of others of the types described
in the other clauses of this definition (including all dividends of other
Persons) the payment of which is guaranteed, directly or indirectly, by such
Person or that is otherwise its legal liability or which such Person has agreed
to purchase or repurchase or in respect of which such Person has agreed
contingently to supply or advance funds (whether or not such items would appear
upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligation or on any letter of credit, banker's acceptance
or similar credit transaction, and (v) and obligations under any currency or
interest rate swap, hedge or similar protection device of any such Person.
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The amount of Debt of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations referred to in clause (iii) above, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
PROVIDED, HOWEVER, that (i) the amount outstanding at any time of any Debt
issued with original issue discount is the principal amount of such Debt less
the remaining unamortized portion of the original issue discount of such Debt at
such time as determined in conformity with GAAP, and (ii) Debt shall not include
any liability for federal, state, local or other taxes. Notwithstanding any
other provision of the foregoing definition, any trade payable arising from the
purchase of goods or materials or for services obtained in the Ordinary Course
of Business shall not be deemed to be "Debt" for purposes of this definition.
"Deferred Tax Liability" means an amount equal to (x) the aggregate
amount of income that would have been recognized by the Parent for periods
beginning after the Closing Date pursuant to adjustments under Section 481 of
the Code arising from a change in the Company's accounting method and that is
instead recognized by the Shareholders in each case as a result of the Section
338(h)(10) Election, multiplied by (y) the highest rate applicable to an
individual resident in Fairfax County, Commonwealth of Virginia. The parties
have agreed that for purposes of Sections 2.3(b) and (c) of this Agreement, the
Deferred Tax Liability shall be deemed to be $4,000,000, regardless of whatever
the Deferred Tax Liability is ultimately determined to be.
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"Direct Contract Costs" means, with respect to any period, the
aggregate amounts of labor and other direct expenses, including, without
limitation, expenses for materials, subcontracts, consultants and travel.
"GAAP" means generally accepted accounting principles, as in
effect as of the date hereof, applied in a manner consistent with the Company's
past practices, except that the Parent Home Office Expense Allocation and other
costs and expenses of the Parent shall be determined in a manner consistent with
the Parent's past practices.
"Indirect Cost" means any fringe benefits, general and
administrative expenses and overhead expenses.
"Knowledge" means the actual knowledge of any of the
individuals listed on Schedule 9.1.
"Operating Profit" means, with respect to any period, (x)
Revenue MINUS (y) Direct Contract Costs minus (z) Indirect Costs. In determining
Operating Profit no deduction shall be made for unallowables, interest expense,
Taxes and any allocations of costs or expenses by the Parent to the Company,
including the Parent Home Office Expense Allocation referred to in Section 4.18;
however, deduction shall be made for costs and expenses related to certain
corporate functions of the Company assumed by the Parent following the Closing,
including, but not limited to, insurance, audit and treasury costs that the
Company would otherwise have incurred, but for the consummation of the
transactions contemplated by this Agreement. For purposes of calculating the
Operating Profit, no more than $350,000 of management reserves of the Company
existing as of the Closing Date may be
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included in determining Revenue or any other constituent of the Operating
Profit, except if the Parent requests that such reserves be altered.
"Person" means any individual, corporation, partnership,
limited liability company or partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or government (including
any agency or political subdivision thereof).
"Revenue" means, with respect to any period, revenues
determined in accordance with GAAP, consistently applied.
"Tax" or "Taxes" means all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all net income,
franchise, profits, gross receipts, capital, sales, use, ad valorem, value
added, transfer, transfer gains, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, real or personal property, and estimated taxes, customs duties,
fees, assessments and charges of any kind whatsoever, together with any interest
and any penalties, fines, additions to tax or additional amounts thereon,
imposed by any taxing authority (federal, state, local or foreign) and shall
include any transferee liability in respect of Taxes.
"Tax Return" means all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect to
any Taxes.
"Transfer Taxes" means all stamp, transfer, documentary,
sales, use, registration and other such Taxes and fees (including, without
limitation, any penalties and interest) incurred in connection with this
Agreement and the transactions contemplated by this Agreement.
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"Working Capital" means the difference of (x) the consolidated
current assets of the Company, MINUS (y) the consolidated current liabilities of
the Company, determined in accordance with GAAP applied on a consistent basis.
9.2 Sellers' Representative.
(i) Each Seller hereby irrevocably appoints and each other
Shareholder and Option Holder by its execution and delivery of a letter of
transmittal or option cancellation and settlement form shall irrevocably appoint
Joseph Maurelli to act as such Seller's attorney-in-fact and representative (the
"SELLERS' REPRESENTATIVE"), to do any and all things and to execute any and all
documents, in such Shareholder's or Option Holder's name, place and stead, in
any way which such Shareholder or Option Holder could do if personally present,
in connection with this Agreement, and the transactions contemplated hereby and
thereby, including to accept on such Shareholder's or Option Holder's behalf any
amount payable to such Shareholder or Option Holder under this Agreement, or to
amend, cancel or extend, or waive the terms of, this Agreement. The Parent and
the Merger Sub shall be entitled to rely, as being binding upon such Shareholder
or Option Holder, upon any document or other paper believed by the Parent and
the Merger Sub to be genuine and correct and to have been signed by the Sellers'
Representative, and the Parent and the Merger Sub shall not be liable to any
Shareholder or Option Holder for any action taken or omitted to be taken by the
Parent and the Merger Sub in such reliance. The Sellers' Representative shall
have the sole and exclusive right on behalf of the Shareholder or Option Holder
to take any action or provide any waiver pursuant to
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Section 5.1, 9.4 or Article VII or VIII and to settle any claim or controversy
arising under this Agreement.
(ii) The Sellers' Representative may resign at any time by
giving written notice of resignation to the Parent and the Merger Sub and the
Sellers and may be removed at any time with or without cause by the Sellers who
held a majority of the outstanding Common Stock of the Company at the time of
the Closing. Upon any such resignation or removal, such Sellers shall have the
right to appoint, with the consent of the Parent and the Merger Sub, a successor
Sellers' Representative. If no successor Sellers' Representative shall have been
so appointed by such Sellers, and shall have accepted such appointment, within
30 days after the retiring Sellers' Representative's giving of notice of
resignation or the Sellers' removal of the retiring Sellers' Representative,
then the retiring Sellers' Representative may, on behalf of the Shareholders and
Option Holders, appoint a successor Sellers' Representative, which shall be
acceptable to the Parent and the Merger Sub (which shall not unreasonably
withhold or delay their approval). Upon the acceptance of any appointment as
Sellers' Representative thereunder by a successor Sellers' Representative, such
successor Sellers' Representative shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Sellers'
Representative, and the retiring Sellers' Representative shall be discharged
from its duties and obligations as Sellers' Representative under this Agreement.
After any retiring Sellers' Representative's resignation or removal hereunder as
Sellers' Representative, the provisions of this Section 9.2 shall inure to
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its benefit as to any actions taken or omitted to be taken by it while it was
Sellers' Representative.
(iii) The grant of authority provided for in this Section 9.2:
(a) is coupled with an interest and shall be irrevocable and survive the death,
incompetency, bankruptcy or liquidation of any Shareholder or Option Holder and
shall be binding on any successor thereto; and (b) shall survive the delivery of
an assignment by a Shareholder or Option Holder of the whole or any fraction of
its interest in any payment due to it under this Agreement.
9.3 Expenses. Unless otherwise specifically provided herein, the
parties shall bear their own respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and consummation of the
transactions contemplated hereby. Notwithstanding the foregoing, the Parent and
the Merger Sub agree that if the Closing occurs and the transactions
contemplated by this Agreement are consummated, the Parent and the Merger Sub
will pay transaction expenses incurred by the Company, the Subsidiaries and the
Shareholders in respect of their outside legal, financial and accounting
advisors, up to $300,000; it being agreed by the parties hereto that any
accounting, legal and/or other expenses of the Company, the Subsidiaries and the
Sellers in excess of such specified amounts, and any other transaction expenses
of the Company, the Subsidiaries and the Sellers shall be paid solely by the
Shareholders and the Option Holders pro rata from their respective proceeds of
the transaction contemplated hereunder, and shall not be otherwise charged or
expensed to the Company.
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9.4 Waivers and Amendments; Non-Contractual Remedies; PRESERVATION
OF REMEDIES. Subject to the provisions of Section 13.1-718I of the VSCA, this
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by the Parent
and the Merger Sub and the Sellers or the Sellers' Representative or, in the
case of a waiver, by or on behalf of the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof. Nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The indemnification
provisions of Article VIII are the exclusive remedy for breaches of this
Agreement, except for equitable relief following willful failure to consummate
this Agreement. The rights and remedies herein provided are cumulative. The
rights and remedies of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in this Agreement or any document delivered pursuant to
this Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement or any document
delivered pursuant to this Agreement (or in any other agreement between the
parties) as to which there is no inaccuracy or breach. The information provided
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in any particular Disclosure Schedule to this Agreement is deemed disclosed for
all purposes of this Agreement.
9.5 Public Disclosure. Each of the parties to this Agreement hereby
agrees with the other party that, except as may be required to comply with the
requirements of applicable law, no press release or similar public announcement
or communication will be made or caused to be made concerning the execution or
performance of this Agreement or the transactions contemplated hereunder unless
specifically approved in advance by both parties, such approval not to be
unreasonably withheld, conditioned or delayed. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other parties and shall
give the other parties an opportunity to comment thereon.
9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND
IN ALL RESPECTS SHALL BE INTER PRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND EACH SELLER
AND THE PARENT IRREVOCABLY AGREE THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT LOCATED IN FAIRFAX COUNTY, COMMONWEALTH OF VIRGINIA OR ANY FEDERAL COURT
LOCATED IN THE EASTERN DISTRICT OF VIRGINIA AND EACH PARTY AGREES
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NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH ACTION,
SUIT OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS IMPROPER
OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY
SUCH COURT. ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY SUCH
ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST ANY PARTY IF GIVEN
PERSONALLY OR BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY
ANY OTHER MEANS OF MAIL THAT REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID. NOTHING
HEREIN CONTAINED SHALL BE DEEMED TO AFFECT THE RIGHT OF ANY PARTY TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY OTHER PARTY IN ANY JURISDICTION OTHER THAN
VIRGINIA. NOTWITHSTANDING THE FOREGOING UNLESS THE SELLERS' REPRESENTATIVE AND
THE PARENT SHALL OTHERWISE AGREE, ALL CLAIMS RESPECTING INDEMNIFICATION UNDER
ARTICLE VIII SHALL BE REFERRED FOR BINDING RESOLUTION THROUGH ARBITRATION, NOT
SUBJECT TO APPEAL, BEFORE A
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SINGLE ARBITRATOR IN FAIRFAX COUNTY, VIRGINIA UNDER THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION.
9.7 Notices. Any notices or other communications required under
this Agreement shall be in writing and be effective upon delivery if given by
hand delivery or facsimile transmission or on the next day after given if
delivered by overnight courier, and shall be given at the addresses or facsimile
numbers set forth below, with copies provided as follows:
(a) if to the Company or the Sellers, to the Sellers'
Representative addressed to:
Joseph Maurelli
TECHMATICS, Inc.
12450 Fair Lakes Circle
Fairfax, VA 22033
Fax: 703-802-2348
with a copy to:
Venable, Baetjer and Howard, LLP
2010 Corporate Ridge Road, Suite 400
McLean, VA 22101
Attn: William L. Walsh, Jr., Esq.
Fax: 703-821-8949
(b) if to the Parent or the Merger Sub, addressed to:
Anteon Corporation
3211 Jermantown Road
Fairfax, VA 22030-2801
Attn: Curtis L. Schehr, Esq.
Vice President and General Counsel
Fax: 703-246-0629
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with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attn: Carl L. Reisner, Esq.
Fax: 212-757-3990
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties to this Agreement in the manner herein
proved.
9.8 Section Headings. The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement. A reference to a Section
or an Exhibit or Schedule will mean a Section in, or Exhibits or Schedule to,
this Agreement unless otherwise explicitly set forth.
9.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.10 Assignments. This Agreement may not be assigned, by operation
of law or otherwise, except that the Parent or the Merger Sub may assign for
collateral purposes their rights under this Agreement to their financing
sources. This Agreement shall be binding upon and inure to the benefit of
successors and legal representatives of the parties hereto.
9.11 Entire Agreement, Enforceability and Miscellaneous. This
Agreement, including the Exhibits and Schedules attached hereto, (a) constitutes
the entire agreement among the parties with respect to the transactions
contemplated hereby and, except as set forth herein at Sections 4.6 and 4.8,
supersedes all prior
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agreements and understandings, both written and oral, among the parties, with
respect to the subject matter hereof; (b) shall be binding upon, and is solely
for the benefit of, each of the parties herein and nothing in this Agreement
except Sections 8.1 and 8.2 is intended to confer upon any other persons any
rights or remedies of any nature whatsoever hereunder or by reason of this
Agreement; and (c) in case any provision in this Agreement shall be or shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
<PAGE>
105
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
ANTEON CORPORATION
By: /s/ JOSEPH M. KAMPF
--------------------------------------------
Name: Joseph M. Kampf
Title: President and Chief Executive Officer
TECHMATICS, INC.
By: /s/ J. MAURELLI
--------------------------------------------
Name: J. Maurelli
Title: President and Chief Executive Officer
TM ACQUISITION CORP.
By: /s/ JOSEPH M. KAMPF
--------------------------------------------
Name: Joseph M. Kampf
Title: President and Chief Executive Officer
<PAGE>
106
SELLERS
/s/ JOSEPH MAURELLI
--------------------------------------------
Joseph Maurelli
/s/ KENT E. MAGGARD
--------------------------------------------
Kent E. Maggard
/s/ WALTER S. SZCZYPINSKI, JR.
--------------------------------------------
Walter S. Szczypinski, Jr.
/s/ GARRY L. MILLER
--------------------------------------------
Garry L. Miller
/s/ JAMES A. FLEMING, JR.
--------------------------------------------
James A. Fleming, Jr.
/s/ CHARLES T. DERICK
--------------------------------------------
Charles T. Derick
/s/ DEBORAH H. ALDERSON
--------------------------------------------
Deborah H. Alderson
/s/ JOSEPH MAURELLI
--------------------------------------------
Joseph Maurelli, as Trustee
under the Joseph Maurelli revocable trust,
dated February 15, 1995
/s/ WALTER S. SZCZYPINSKI, JR.
--------------------------------------------
Walter S. Szczypinski, Jr., as Trustee
under the Walter S. Szczypinski, Jr. revocable trust,
dated October 24, 1994
<PAGE>
Exhibit 10.3
$100,000,000
ANTEON CORPORATION
12% SENIOR SUBORDINATED NOTES DUE 2009
PURCHASE AGREEMENT
May 6, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANK SECURITIES INC.,
LEGG MASON WOOD WALKER, INCORPORATED
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. INTRODUCTORY. Anteon Corporation, a Virginia corporation (the
"COMPANY"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the several initial purchasers named in Schedule A hereto (the
"INITIAL PURCHASERS") U.S.$100,000,000 principal amount of its 12% Senior
Subordinated Notes Due 2009 (the "NOTES"). The Notes will be unconditionally
guaranteed on a senior subordinated basis by Vector Data Systems, Inc. and
Techmatics, Inc., each a Virginia corporation (the "SUBSIDIARY GUARANTORS"), and
each subsequently organized domestic subsidiary of the Company (such guaranties,
together with the Notes, the "OFFERED SECURITIES"). The Offered Securities will
be issued under an indenture dated as of May 11, 1999 (the "INDENTURE"), among
the Company, the Subsidiary Guarantors and IBJ Whitehall Bank & Trust Company,
as trustee (the "TRUSTEE"). The United States Securities Act of 1933 is herein
referred to as the "SECURITIES ACT".
The Offered Securities are being issued and sold in connection with (i)
the consummation of the acquisition (the "ACQUISITION") of all shares of common
stock issued and outstanding of Analysis & Technology, Inc., a Connecticut
corporation ("A&T"), pursuant to an agreement and plan of merger dated March 7,
1999, among the Company, Buffalo Acquisition Corporation, a Connecticut
corporation and a wholly-owned subsidiary of the Company ("BUFFALO"), and A&T
(the "MERGER AGREEMENT") and (ii) the refinancing of all existing bank
indebtedness of the Company and A&T. To consummate the Acquisition and the
refinancing, (1) the Company will issue the Offered Securities, (2) the Company
will enter into a credit agreement in an aggregate principal amount of $170.0
million (together with related guarantees and security agreements, the "CREDIT
AGREEMENT") and (3) Caxton-Iseman Capital, Inc. and/or an affiliate
(collectively, "CIC") will contribute or cause to be contributed not less than
$22.5 million in cash in exchange for an equity interest in the Company. The
consummation of the Acquisition is expected to occur in June 1999.
On the Closing Date (as defined below), the net proceeds from the sale of
the Offered Securities (the "ESCROW FUNDS") will be deposited with IBJ Whitehall
Bank & Trust Company, as escrow agent (the "ESCROW AGENT"), pursuant to the
terms of an escrow agreement (the "ESCROW AGREEMENT"). The Escrow Funds shall be
withdrawn and paid out pursuant to the terms of the Escrow Agreement.
Holders (including subsequent transferees) of the Offered Securities will
be entitled to the benefit of a Registration Rights Agreement of even date
herewith (the "REGISTRATION RIGHTS AGREEMENT"), among the Company, the
Subsidiary Guarantors and the Initial Purchasers, pursuant to which the Company
will be obligated to file with the Securities and Exchange Commission (i) a
registration statement under the Securities Act registering an issue of senior
subordinated notes of the Company (the "EXCHANGE NOTES") which shall be
identical in all material respects to the Offered Securities (except that the
Exchange Notes will not contain terms with respect to transfer restrictions) and
(ii) under certain circumstances, a shelf registration statement pursuant to
Rule 415 under the Securities Act.
<PAGE>
This Agreement, the Registration Rights Agreement, the Indenture and the
Escrow Agreement are referred to herein collectively as the "OPERATIVE
DOCUMENTS". The Merger Agreement, all other operative agreements relating to the
Acquisition and CIC's equity contribution, if any, and the Credit Agreement are
referred to herein collectively as the "TRANSACTION DOCUMENTS".
The Company and the Subsidiary Guarantors hereby agree with the several
Initial Purchasers as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SUBSIDIARY
GUARANTORS. The Company and the Subsidiary Guarantors jointly and severally
represent and warrant to, and agree with, the several Initial Purchasers that:
1. A preliminary confidential offering circular and a confidential
offering circular relating to the Offered Securities to be offered by the
Initial Purchasers have been prepared by the Company. Such preliminary
offering circular and offering circular, as supplemented as of the date of
this Agreement, together with any other document approved by the Company
for use in connection with the contemplated resale of the Offered
Securities are hereinafter collectively referred to as the "OFFERING
DOCUMENt". As of its respective dates, the Offering Document does not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
preceding sentence does not apply to statements in or omissions from the
Offering Document based upon written information furnished to the Company
by any Initial Purchaser through Credit Suisse First Boston Corporation
("CSFBC") specifically for use therein, it being understood and agreed
that the only such information is that described as such in Section 7(b).
2. The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Virginia, with
power and authority (corporate and other) to own its properties and
conduct its business as described in the Offering Document; and the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to so qualify or to be in good standing, singly
or in the aggregate, would not result in a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole (a
"MATERIAL ADVERSE EFFECT") .
3. Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Offering Document; and each subsidiary of the Company is duly qualified to
do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification, except where the failure to
so qualify or to be in good standing, singly or in the aggregate, would
not result in a Material Adverse Effect; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly authorized
and validly issued and is fully paid and nonassessable; and the capital
stock of each subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects, other
than liens created pursuant to the Company's existing senior credit
facility. Other than the Subsidiary Guarantors, the Company has no
significant subsidiaries within the meaning of Rule 1-02(w) of Regulation
S-X under the Securities Act.
4. The Indenture has been duly authorized by the Company and the
Subsidiary Guarantors; the Offered Securities have been duly authorized;
and when the Offered Securities are delivered and paid for pursuant to
this Agreement on the Closing Date (as defined below), the Indenture will
have been duly executed and delivered, such Offered Securities will have
been duly executed, authenticated, issued and delivered and the Indenture
and such Offered Securities will constitute valid and legally binding
obligations of the Company and the Subsidiary Guarantors, enforceable in
accordance with their terms, except to the extent that enforcement thereof
may be limited by (i) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and (ii) to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law); and the Offered Securities conform in all
material respects to the description thereof contained in the Offering
Document.
2
<PAGE>
5. Each of the Registration Rights Agreement and the Escrow
Agreement has been duly authorized by the Company and the Subsidiary
Guarantors, as appropriate, and, when executed and delivered by the
parties thereto, will constitute a valid and legally binding obligation of
the Company and the Subsidiary Guarantors, as appropriate, enforceable in
accordance with its terms, except (A) to the extent that enforcement
thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and (ii) to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and (B) with respect to the Registration
Rights Agreement, any rights to indemnity and contribution may be limited
by Federal and state securities laws and public policy considerations; and
the Registration Rights Agreement and the Escrow Agreement conform in all
material respects to the descriptions thereof contained in the Offering
Document.
6. Each of the Transaction Documents has been or will be duly
authorized by the Company, Buffalo and the Subsidiary Guarantors , as
appropriate, and will conform in all material respects to the description
thereof in the Offering Document and, when executed and delivered by the
parties thereto, will constitute a valid and binding obligation of the
Company, Buffalo and the Subsidiary Guarantors, as appropriate,
enforceable against the Company and the Subsidiary Guarantors, as
appropriate, in accordance with its terms, except to the extent that
enforcement thereof may be limited by (i) bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally
and (ii) to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law). The
Company will advise the Initial Purchasers of any material developments
relating to the Transaction Documents and, within one business day of the
Acquisition closing date, deliver to the Initial Purchasers a true and
correct copy of the Transaction Documents in the form originally executed.
7. Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between the Company and any person
that would give rise to a valid claim against the Company or any Initial
Purchaser for a brokerage commission, finder's fee or other like payment
in connection with the transaction contemplated by this Agreement.
8. Except as set forth in the Offering Document and assuming the
accuracy of the representations, warranties and agreements of the Initial
Purchasers under Section 4 of this Agreement, no consent, approval,
authorization, or order of, or filing with, any governmental agency or
body or any court is required for the consummation of the transactions
contemplated by this Agreement in connection with the issuance and sale of
the Offered Securities by the Company.
9. The execution, delivery and performance of the Operative
Documents and the Transaction Documents, and the issuance and sale of the
Offered Securities and compliance with the terms and provisions thereof by
the Company, Buffalo and the Subsidiary Guarantors and, as appropriate,
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, rule,
regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the
charter or by-laws of the Company or any such subsidiary, except for such
breaches, violations or defaults that, singly or in the aggregate, would
not result in a Material Adverse Effect; and the Company and the
Subsidiary Guarantors have the necessary power and authority to authorize,
issue and sell the Offered Securities and the guaranties thereof,
respectively, as contemplated by this Agreement.
10. To the knowledge of the Company and the Subsidiary Guarantors,
the execution, delivery and performance by A&T and CIC, as appropriate, of
the Transaction Documents and compliance with the terms and provisions
thereof will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, rule,
regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over A&T or CIC or any of their
properties, or any agreement or instrument to which A&T or CIC is a party
or by which A&T or CIC is bound or to which any of their properties is
subject, or the charter or by-laws of A&T or CIC.
3
<PAGE>
11. This Agreement has been duly authorized, executed and delivered
by the Company and the Subsidiary Guarantors.
12. Except as disclosed in the Offering Document, the Company and
its subsidiaries have good and marketable title to material properties and
all other material real properties and assets owned by them, in each case
free from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or proposed to be
made thereof by them; and except as disclosed in the Offering Document,
the Company and its subsidiaries hold any material leased real or personal
property under valid and enforceable leases with no exceptions that would
materially interfere with the use made or proposed to be made thereof by
them.
13. The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that
individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect.
14. No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
would reasonably be expected to have a Material Adverse Effect.
15. Except as described in the Offering Document, the Company and
its subsidiaries own, possess, have the right to use or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect.
16. Except as disclosed in the Offering Document, to the knowledge
of the Company, neither the Company nor any of its subsidiaries is in
violation of any statute, any rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to
the use, disposal or release of hazardous or toxic substances or relating
to the protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "ENVIRONMENTAL LAWS"), owns
or operates any real property contaminated with any substance that is
subject to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and the Company is not aware of any pending investigation
which would reasonably be expected to lead to such a claim.
17. Except as disclosed in the Offering Document, there are no
pending actions, suits or proceedings against or affecting the Company,
any of its subsidiaries or any of their respective properties that
individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect, or would materially and adversely affect the
ability of the Company, Buffalo or any Subsidiary Guarantor, as
appropriate, to perform its obligations under the Operative Documents or
the Transaction Documents, or which are otherwise material in the context
of the sale of the Offered Securities; and no such actions, suits or
proceedings are threatened or, to the Company's knowledge, contemplated.
18. The financial statements included in the Offering Document
present fairly the financial position of (i) the Company and its
consolidated subsidiaries and (ii) to the knowledge of the Company, A&T
and its consolidated subsidiaries, as of the dates shown and their results
of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis;
and the assumptions used in preparing the pro forma financial statements
included in the Offering Document provide a reasonable basis for
presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma
adjustments give appropriate effect to those assumptions and the pro forma
columns therein reflect the proper application of those adjustments to the
corresponding historical financial statement amounts.
4
<PAGE>
19. Except as disclosed in the Offering Document, since the date of
the latest audited financial statements included in the Offering Document
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole, and, except as disclosed in
or contemplated by the Offering Document, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
20. Neither the Company nor any Subsidiary Guarantor is an open-end
investment company, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
United States Investment Company Act of 1940 (the "INVESTMENT COMPANY
ACT"); and neither the Company nor any Subsidiary Guarantor is nor, after
giving effect to the offering and sale of the Offered Securities and the
application of the proceeds thereof as described in the Offering Document,
will be an "investment company" as defined in the Investment Company Act.
21. No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Offered Securities or the
guarantees of the Subsidiary Guarantors are listed on any national
securities exchange registered under Section 6 of the United States
Securities Exchange Act of 1934 ("EXCHANGE ACT") or quoted in a U.S.
automated inter-dealer quotation system.
22. Assuming the accuracy of the representations, warranties and
agreements of the Initial Purchasers in Section 4 of this Agreement, the
offer and sale of the Offered Securities in the manner contemplated by
this Agreement will be exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereof and Regulation S
thereunder; and it is not necessary to qualify an indenture in respect of
the Offered Securities under the United States Trust Indenture Act of
1939, as amended (the "TRUST INDENTURE ACT").
23. Neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf (i) has, within the six-month period prior
to the date hereof, offered or sold in the United States or to any U.S.
person (as such terms are defined in Regulation S under the Securities
Act) the Offered Securities or any security of the same class or series as
the Offered Securities or (ii) has offered or will offer or sell the
Offered Securities (A) in the United States by means of any form of
general solicitation or general advertising within the meaning of Rule
502(c) under the Securities Act or (B) with respect to any such securities
sold in reliance on Rule 903 of Regulation S under the Securities Act, by
means of any directed selling efforts within the meaning of Rule 902(c) of
Regulation S. The Company, its affiliates and any person acting on its or
their behalf have complied and will comply with the offering restrictions
requirement of Regulation S. The Company has not entered and will not
enter into any contractual arrangement with respect to the distribution of
the Offered Securities except for this Agreement.
24. KPMG LLP, who have certified certain financial statements of the
Company and A&T, whose reports appear in the Offering Document and who
have delivered the letters referred to in Section 6(a) hereof, are
independent certified public accountants with respect to the Company and
its subsidiaries and, to the knowledge of the Company, of A&T, as required
by the Securities Act and the Rules and Regulations thereunder.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the Initial
Purchasers, and the Initial Purchasers agree to purchase from the Company, at a
purchase price of 97% of the principal amount thereof plus accrued interest from
May 11, 1999 to the Closing Date (as hereinafter defined), the principal amount
of Offered Securities set forth opposite the name of the several Initial
Purchasers in Schedule A hereto.
The Company will deliver against payment of the purchase price the Offered
Securities in the form of one or more permanent global Securities in definitive
form (the "Global Securities") deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any permanent global Securities will be held only
in book-entry form through DTC, except in the limited circumstances described in
the Offering Document. Payment for the Offered Securities shall be made by the
Initial Purchasers in Federal (same day) funds by wire transfer to an account
maintained by the Escrow Agent at a bank acceptable to CSFBC in connection
5
<PAGE>
with a closing to be held at the office of Cravath, Swaine & Moore at 9:00 A.M.
(New York time), on May 11, 1999, or at such other time not later than seven
full business days thereafter as CSFBC and the Company determine, such time
being herein referred to as the "CLOSING DATE", against delivery to the Trustee
as custodian for DTC of the Global Securities representing all of the Offered
Securities. The Global Securities will be made available for checking at the
above office at least 24 hours prior to the Closing Date.
4. REPRESENTATIONS BY INITIAL PURCHASERS; RESALE BY INITIAL PURCHASERS.
1. Each Initial Purchaser severally represents and warrants to the
Company that it is an "accredited investor" within the meaning of Regulation D
under the Securities Act.
2. Each Initial Purchaser severally acknowledges that the Offered
Securities have not been registered under the Securities Act and may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except in accordance with Regulation S or pursuant to an
exemption from the registration requirements of the Securities Act. Each Initial
Purchaser severally represents and agrees that it has offered and sold the
Offered Securities, and will offer and sell the Offered Securities (i) as part
of its distribution at any time and (ii) otherwise until the later of the
commencement of the offering and the Closing Date, only in accordance with Rule
903 or Rule 144A under the Securities Act ("RULE 144A"). Accordingly, neither
such Initial Purchaser nor its affiliates, nor any persons acting on its or
their behalf, have engaged or will engage in any directed selling efforts with
respect to the Offered Securities, and such Initial Purchaser, its affiliates
and all persons acting on its or their behalf have complied and will comply with
the offering restrictions requirements of Regulation S.
3. Each Initial Purchaser severally agrees that it and each of its
affiliates or anyone acting on its behalf will not enter into any contractual
arrangement with respect to the distribution of the Offered Securities except
for any such arrangements with the other Initial Purchasers or affiliates of the
other Initial Purchasers or with the prior written consent of the Company.
4. Each Initial Purchaser severally agrees that it and each of its
affiliates will not offer or sell the Offered Securities by means of any form of
general solicitation or general advertising, within the meaning of Rule 502(c)
under the Securities Act, including, but not limited to (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, or (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising. Each Initial Purchaser severally agrees, with respect to resales to
be made in reliance on Rule 144A of any of the Offered Securities, to deliver
either with the confirmation of such resale or otherwise prior to settlement of
such resale a notice to the effect that the resale of such Offered Securities
has been made in reliance upon the exemption from the registration requirements
of the Securities Act provided by Rule 144A.
5. Each Initial Purchaser severally represents and agrees that (i)
it has not offered or sold and prior to the date six months after the date of
issue of the Offered Securities will not offer or sell any Offered Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Offered Securities in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Offered Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the several
Initial Purchasers that:
1. The Company will advise CSFBC promptly of any proposal to amend
or supplement the Offering Document and will not effect such amendment or
supplementation without CSFBC's consent, which consent shall not be
unreasonably withheld. If, at any time prior to the completion of the
resale of the Offered Securities by the Initial Purchasers, any event
occurs as a result of which the Offering Document as then amended or
supplemented would include an untrue
6
<PAGE>
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, the Company will promptly
notify CSFBC of such event and will promptly prepare, at its own expense,
an amendment or supplement which will correct such statement or omission.
Neither CSFBC's consent to, nor the Initial Purchasers' delivery to
offerees or investors of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
2. The Company will furnish to CSFBC copies of the Offering Document
and all amendments and supplements to such documents, in each case as soon
as available and in such quantities as CSFBC requests, and the Company
will furnish to CSFBC on the date hereof three copies of the Offering
Document signed by a duly authorized officer of the Company, one of which
will include the independent accountants' reports therein manually signed
by such independent accountants. At any time when the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the Company will
promptly furnish or cause to be furnished to CSFBC (and, upon request, to
each of the other Initial Purchasers) and, upon request of holders and
prospective Initial Purchasers of the Offered Securities, to such holders
and purchasers, copies of the information required to be delivered to
holders and prospective purchasers of the Offered Securities pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto) to the extent necessary to permit compliance with Rule 144A in
connection with resales by such holders of the Offered Securities. The
Company will pay the expenses of printing and distributing to the Initial
Purchasers all such documents.
3. The Company will use its best efforts, in cooperation with the
Initial Purchasers, to arrange for the qualification of the Offered
Securities for sale and the determination of their eligibility for
investment under the laws of such jurisdictions in the United States and
Canada as CSFBC designates and will continue such qualifications in effect
so long as required for the resale of the Offered Securities by the
Initial Purchasers, provided that the Company will not be required to
qualify as a foreign corporation or to file a general consent to service
of process in any such state.
4. During the period of five years hereafter, the Company will
furnish to CSFBC (and upon request, to each of the other Initial
Purchasers), as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year, if any; and the
Company will furnish to CSFBC (and upon request, to each of the other
Initial Purchasers) (i) as soon as available, a copy of each description
of reports, notices or communications sent to securityholders or, if
applicable, filed with foreign regulators or securities exchanges, and
(ii) from time to time, such other information concerning the Company as
CSFBC may reasonably request.
5. During the period of two years after the Closing Date, the
Company will, upon request, furnish to CSFBC (and upon request, to each of
the other Initial Purchasers) and any holder of Offered Securities a copy
of the restrictions on transfer applicable to the Offered Securities.
6. During the period of two years after the Closing Date, the
Company will not, and will not permit any of its affiliates (as defined in
Rule 144 under the Securities Act) to, resell any of the Offered
Securities that have been reacquired by any of them.
7. During the period of two years after the Closing Date, the
Company will not be or become, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act.
8. The Company will pay all expenses incidental to the performance
of its obligations under this Agreement, the Indenture and the Escrow
Agreement including (i) all expenses in connection with the execution,
issue, authentication, packaging and initial delivery of the Offered
Securities, the preparation and printing of this Agreement, the Offered
Securities, the Offering Document and amendments and supplements thereto,
the Indenture, the Escrow Agreement and any other document relating to the
issuance, offer, sale and delivery of the Offered Securities; (ii) the
cost of qualifying the Offered Securities for trading in The PortalSM
Market ("PORTAL") and any expenses incidental thereto; (iii) the cost of
any advertising approved by the Company in connection with the issue of
the Offered Securities; (iv) for any expenses (including fees and
disbursements of counsel) incurred in connection with qualification of the
Offered Securities for sale under the laws of such jurisdictions in the
United States and Canada as CSFBC in accordance with Section 5(c) hereof
designates and the printing of memoranda relating thereto; (v) for any
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fees charged by investment rating agencies for the rating of the
Securities; (vi) for expenses incurred in distributing preliminary
offering circulars and the Offering Document (including any amendments and
supplements thereto) to the Initial Purchasers and (vii) the fees and
expenses of the Trustee, the Escrow Agent and their professional advisors.
The Company will also pay or reimburse the Initial Purchasers (to the
extent incurred by them) for all travel expenses of the Company's officers
and employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the Offered
Securities from the Initial Purchasers.
9. In connection with the offering, until CSFBC shall have notified
the Company and the other Initial Purchasers of the completion of the
resale of the Offered Securities, neither the Company nor any of its
affiliates has or will, either alone or with one or more other persons,
bid for or purchase for any account in which it or any of its affiliates
has a beneficial interest any Offered Securities or attempt to induce any
person to purchase any Offered Securities; and neither it nor any of its
affiliates will make bids or purchases for the purpose of creating actual,
or apparent, active trading in, or of raising the price of, the Offered
Securities.
10. For a period of 180 days after the date of the initial offering
of the Offered Securities by the Initial Purchasers, the Company will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any United States dollar-denominated debt securities issued or
guaranteed by the Company and having a maturity of more than one year from
the date of issue or publicly disclose the intention to make any such
offer, sale, pledge or disposition, without the prior written consent of
CSFBC. The Company will not at any time offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any securities
under circumstances where such offer, sale, pledge, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act or the safe harbor of Regulation S thereunder to cease to
be applicable to the offer and sale of the Offered Securities.
11. The Company will use its best efforts to cause the Offered
Securities to become eligible for PORTAL.
6. CONDITIONS OF THE OBLIGATION OF THE INITIAL PURCHASERS. The obligation
of the several Initial Purchasers to purchase and pay for the Offered Securities
will be subject to the accuracy of the representations and warranties on the
part of the Company herein, to the accuracy of the statements of officers of the
Company made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions
precedent:
1. The Initial Purchasers shall have received a letter, dated the
date of this Agreement, of KPMG LLP, independent auditors for the Issuer
and A&T, substantially in the form of Exhibit B hereto and acceptable to
the Initial Purchasers.
2. Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) a change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of CSFBC, be likely to prejudice
materially the success of the proposed issue, sale or distribution of the
Offered Securities, whether in the primary market or in respect of
dealings in the secondary market, or (ii) (A) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries, taken as one enterprise, which, in the
judgment of CSFBC, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the offering or the sale of and
payment for the Offered Securities; (B) any downgrading in the rating of
any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Securities Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (C) any material suspension or material
limitation of trading in securities generally on the New York Stock
Exchange, or any setting of minimum prices for trading on such exchange,
or any suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market; (D) any banking moratorium
declared by U.S. Federal or New York authorities; or (E) any outbreak or
escalation of major hostilities in which the United States is involved,
any declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of CSFBC, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or
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<PAGE>
inadvisable to proceed with completion of the offering or sale of and
payment for the Offered Securities.
3. The Initial Purchasers shall have received opinions, dated the
Closing Date, of Curtis L. Schehr, Esq., general counsel of the Company,
that:
(i) Based solely on certificates of public officials in the
respective jurisdictions, each of the Company and the Subsidiary
Guarantors is duly incorporated and is an existing corporation in
good standing under the laws of the State of Virginia and is duly
qualified to do business as a foreign corporation in good standing
in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification
and to such counsels' knowledge, it is not necessary for the Company
and the Subsidiary Guarantors to be qualified to do business as a
foreign corporation in any other jurisdictions;
(ii) To the knowledge of such counsel, the execution, delivery
and performance of the Operative Documents and the Transaction
Documents, and the issuance and sale of the Offered Securities and
compliance with the terms and provisions thereof by the Company,
Buffalo and the Subsidiary Guarantors, as appropriate, will not
result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, rule, regulation or
order of any governmental agency or body or any court having
jurisdiction over the Company, Buffalo or any Subsidiary Guarantor
or any of their properties, or any agreement or instrument to which
the Company, Buffalo or any Subsidiary Guarantor is a party or by
which the Company, Buffalo or any Subsidiary Guarantor is bound or
to which any of the properties of the Company, Buffalo or any
Subsidiary Guarantor is subject, or the charter or by-laws of the
Company, Buffalo or any Subsidiary Guarantor; and
(iii) To the knowledge of such counsel, and except as
described in the Offering Document, there are no pending actions,
suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that individually
or in the aggregate would reasonably be expected to have a Material
Adverse Effect, or would materially and adversely affect the ability
of the Company, Buffalo or any Subsidiary Guarantor, as appropriate,
to perform its obligations under the Operative Documents or the
Transaction Documents; and to the knowledge of such counsel, no such
actions, suits or proceedings are threatened or contemplated.
4. The Initial Purchasers shall have received opinions, dated the
Closing Date, of McGuire Woods Battle & Boothe LLP, Virginia counsel to
the Company and the Subsidiary Guarantors, that:
(i) Each of the Company and the Subsidiary Guarantors has been
duly incorporated and is an existing corporation in good standing
under the laws of the applicable jurisdiction, with corporate power
and authority to own its properties and conduct its business as
described in the Offering Document; and the Company has the
necessary corporate power to authorize, issue and sell, and each
Subsidiary Guarantor has the necessary corporate power to guarantee,
the Offered Securities as contemplated by this Agreement;
(ii) Each of the Operative Documents has been duly authorized
by the Company and the Subsidiary Guarantors, as appropriate; and
(iii) The Merger Agreement has been duly authorized by the
Company.
5. The Initial Purchasers shall have received opinions, dated the
Closing Date, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the
Company and the Subsidiary Guarantors, that:
(i) Based solely on certificates of public officials in the
respective jurisdictions delivered to such counsel by the Company,
each of the Company and each Subsidiary Guarantor has been duly
incorporated and is an existing corporation in good standing
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<PAGE>
under the laws of the State of Virginia, and each is duly qualified
to do business in the jurisdictions listed on schedule attached to
such opinion;
(ii) The Indenture has been duly executed and delivered by the
Company and the Subsidiary Guarantors; the Offered Securities have
been duly executed, issued and delivered by the Company and conform
in all material respects to the description thereof contained in the
Offering Document under the caption "Description of the Notes"; and,
assuming due power and authorization by the Company and the
Subsidiary Guarantors, the Indenture and the Offered Securities will
constitute valid and legally binding obligations of the Company and
the Subsidiary Guarantors, enforceable against the Company and the
Subsidiary Guarantors in accordance with their terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and (ii) to general principles
of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law);
(iii) Each of the Registration Rights Agreement and the Escrow
Agreement has been duly executed and delivered by the Company and
the Subsidiary Guarantors, as appropriate; and each of the
Registration Rights Agreement and the Escrow Agreement conforms in
all material respects to the descriptions thereof contained in the
Offering Document under the caption "Description of the Notes" and,
assuming due power and authorization by the Company and the
Subsidiary Guarantors, constitutes a valid and legally binding
obligation of the Company and the Subsidiary Guarantors, as
appropriate, enforceable in accordance with its terms, except (A) to
the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether enforceability is considered in
proceeding in equity or at law) and (B) with respect to the
Registration Rights Agreements, any rights to indemnity and
contribution may be limited by Federal and state securities laws and
public policy considerations;
(iv) This agreement has been duly executed and delivered by
the Company and the Subsidiary Guarantors;
(v) Neither the Company nor any Subsidiary Guarantor is nor,
after giving effect to the offering and sale of the Offered
Securities and the application of the proceeds thereof as described
in the Offering Document, will be required to be registered as an
investment company under the Investment Company Act of 1940;
(vi) No consent, approval, authorization or order of, or
filing with, any executive, legislative, judicial, administrative or
regulatory body of the United States of America which has not been
obtained, taken or made under the laws, rules and regulations of the
United States of America which in such counsel's experience are
normally applicable to the transactions of the type contemplated by
this Agreement (the "Applicable Law") is required for the
consummation of the transactions contemplated by this Agreement, the
Escrow Agreement, the Registration Rights Agreement or the Indenture
for the issuance or sale of the Offered Securities by the Company,
except such as may be required under state securities laws;
(vii) The execution, delivery and performance of the Operative
Documents, and the issuance and sale of the Offered Securities and
compliance with the terms and provisions thereof by the Company and
its Subsidiary Guarantors, as appropriate, will not (i) violate
Applicable Law, except where the violation would not have a Material
Adverse Effect, (ii) breach or result in a default under any
agreement or instrument listed in Schedule C hereto, or (iii) result
in a violation of the charter or by-laws of the Company or any
Subsidiary Guarantor certified by the Company as in effect on the
date of the opinion;
(viii) The description of the Merger Agreement contained in
the Offering Document fairly summarize the terms of the Merger
Agreement in all material respects;
(ix) Assuming the accuracy of the representations, warranties
and agreements of the Company (other than the representation and
warranty in Section 2(v) of this
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<PAGE>
Agreement), the Subsidiary Guarantors and the Initial Purchasers
contained in this Agreement, (i) the offer, sale and delivery of the
Offered Securities by the Company to the Initial Purchasers pursuant
to this Agreement and (ii) the resales of the Offered Securities by
the Initial Purchasers in the manner contemplated by the Offering
Document and this Agreement are exempt from the registration
requirements of the Securities Act and it is not necessary to
qualify an indenture in respect thereof under the Trust Indenture
Act; and
(x) Such counsel has participated in the preparation of the
Offering Document and, although it has not undertaken to investigate
or verify independently, and does not assume responsibility for, the
accuracy or completeness of the statements contained therein (other
than as explicitly stated in paragraphs (ii) and (iii) above), based
upon such participation, no facts have come to its attention to lead
it to believe that the Offering Document or any amendment or
supplement (except for the financial statements, financial statement
schedules and other financial or statistical data included or
incorporated by reference in or omitted from those documents, as to
which it expresses no such belief), at the time the Offering
Document was issued or on the date of the opinion, included or
includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading.
6. The Initial Purchasers shall have received from Cravath, Swaine &
Moore, counsel for the Initial Purchasers, such opinion or opinions, dated
the Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities, the Offering Document, the exemption
from registration for the offer and sale of the Offered Securities by the
Company to the several Initial Purchasers and the resales by the several
Initial Purchasers as contemplated hereby and other related matters as
CSFBC may require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters. In rendering such opinion, Cravath, Swaine & Moore may
rely as to the incorporation of the Company and all other matters governed
by Virginia law upon the opinion of McGuire Woods Battle & Boothe LLP
referred to above.
7. The Initial Purchasers shall have received a certificate, dated
the Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company and the Subsidiary
Guarantors in which such officers, to the best of their knowledge after
reasonable investigation, shall state that the representations and
warranties of the Company in this Agreement are true and correct, that the
Company has complied with all agreements and satisfied all conditions on
its part to be performed or satisfied hereunder at or prior to the Closing
Date, and that, subsequent to the date of the most recent financial
statements in the Offering Document, there has been no material adverse
change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries
taken as one enterprise except as set forth in or contemplated by the
Offering Document or as described in such certificate.
8. The Initial Purchasers shall have received a letter, dated the
Closing Date, of KPMG LLP which meets the requirements of subsection (a)
of this Section, except that the specified date referred to in such
subsection will be a date not more than three business days prior to the
Closing Date for the purposes of this subsection.
9. The Company shall execute and deliver the Registration Rights
Agreement and the Escrow Agreement and deposit the amounts required in the
Escrow Agreement into an escrow account, pursuant to the terms of the
Escrow Agreement.
10. The Initial Purchasers shall have received the necessary waivers
with respect to any default under its existing senior credit facility.
The Company will furnish the Initial Purchasers with such conformed copies
of such opinions, certificates, letters and documents as the Initial Purchasers
reasonably request. CSFBC may in its sole discretion waive on behalf of the
Initial Purchasers compliance with any conditions to the obligations of the
Initial Purchasers hereunder.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and the Subsidiary
Guarantors will jointly and severally indemnify and hold harmless each Initial
Purchaser, its directors and officers and each
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<PAGE>
person, if any, who controls such Initial Purchaser within the meaning of
Section 15 of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such Initial Purchaser may become
subject, under the Securities Act or the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any of the representations and
warranties of the Company contained herein or any untrue statement or alleged
untrue statement of any material fact contained in the Offering Document, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, including any losses, claims, damages or liabilities
arising out of or based upon the Company's failure to perform its obligations
under Section 5(a) of this Agreement, and will reimburse each Initial Purchaser
for any legal or other expenses reasonably incurred by such Initial Purchaser in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company by any Initial Purchaser through CSFBC specifically for use
therein, it being understood and agreed that the only such information consists
of the information described as such in subsection (b) below; and PROVIDED
FURTHER, HOWEVER, that the foregoing indemnity with respect to the preliminary
offering circular shall not inure to the benefit of the Initial Purchaser from
whom the person asserting any such losses, claims, damages, liabilities or
actions in respect thereof purchased Offered Securities to the extent that such
losses, claims, damages, liabilities or actions in respect thereof of such
Initial Purchaser result from a fact that such Initial Purchaser sold Offered
Securities to a person in an initial resale to whom there was not sent or given,
at or prior to the written confirmation of the sale of such Offered Securities,
a copy of the offering circular (as amended or supplemented), if the Company had
previously furnished a copy of such amendments or supplements to such Initial
Purchaser, and the losses, claims, damages, liabilities or actions in respect
thereof of such Initial Purchaser result from an untrue statement or omission of
a material fact contained in the preliminary offering circular, which was
corrected in the offering circular.
(b) Each Initial Purchaser will severally and not jointly indemnify and
hold harmless the Company, the Subsidiary Guarantors, their directors and
officers and each person, if any, who controls each of the Company or any
Subsidiary Guarantor within the meaning of Section 15 of the Securities Act,
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Securities Act or the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Offering Document, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Initial Purchaser through CSFBC specifically
for use therein, and will reimburse any legal or other expenses reasonably
incurred by the Company or any Subsidiary Guarantor in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Initial Purchaser consists of the following
information in the Offering Document: the information contained in the third
paragraph, the second sentence of the sixth paragraph, the seventh paragraph and
the last paragraph of "Plan of Distribution".
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party (i) will not
relieve it from any liability under subsection (a) or (b) above unless and to
the extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses and
(ii) will not, in any event, relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than under subsection (a)
or (b) above. In case any such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 7 for any legal or other expenses subsequently incurred
by such
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<PAGE>
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action and does not include a statement as to any admission of fault,
culpability or failure to act by or on behalf of any Indemnified Party.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Subsidiary Guarantors on the one hand and the Initial Purchasers on the other
from the offering of the Offered Securities or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Subsidiary Guarantors
on the one hand and the Initial Purchasers on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Subsidiary Guarantors on the one hand
and the Initial Purchasers on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total discounts and commissions
received by the Initial Purchasers from the Company under this Agreement. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or any Subsidiary Guarantors or the Initial Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Initial Purchaser shall be required to contribute any amount in excess of the
amount by which the total price at which the Offered Securities purchased by it
were resold exceeds the amount of any damages which such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Initial Purchasers' obligations
in this subsection (d) to contribute are several in proportion to their
respective purchase obligations and not joint.
(e) The obligations of the Company and the Subsidiary Guarantors under
this Section 7 shall be in addition to any liability which the Company and the
Subsidiary Guarantors may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Initial Purchaser
within the meaning of the Securities Act or the Exchange Act; and the
obligations of the Initial Purchasers under this Section 7 shall be in addition
to any liability which the respective Initial Purchasers may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act.
8. DEFAULT OF INITIAL PURCHASERS. If any Initial Purchaser or Initial
Purchasers default in their obligations to purchase Offered Securities hereunder
and the aggregate principal amount of Offered Securities that such defaulting
Initial Purchaser or Initial Purchasers agreed but failed to purchase does not
exceed 10% of the total principal amount of Offered Securities, CSFBC may make
arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Initial Purchasers, but if no
such arrangements are made by the Closing Date, the non-defaulting Initial
Purchasers shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Offered Securities that such defaulting
Initial Purchasers agreed but failed to purchase. If any Initial Purchaser or
Initial Purchasers so default and the aggregate principal amount of Offered
Securities with respect to which such default or defaults occur exceeds 10% of
the total principal amount of shares of Offered Securities and arrangements
satisfactory to CSFBC and the Company for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Initial Purchaser or the Company, except as provided in Section
9. As used in this Agreement, the term "Initial Purchaser" includes any person
substituted for an Initial Purchaser under this Section. Nothing herein will
relieve a defaulting Initial Purchaser from liability for its default.
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<PAGE>
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Initial Purchasers set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation, or statement as to the results thereof, made by or on
behalf of any Initial Purchaser, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Offered Securities. If this Agreement is
terminated pursuant to Section 8 or if for any reason the purchase of the
Offered Securities by the Initial Purchasers is not consummated, the Company
shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 5 and the respective obligations of the Company and the
Initial Purchasers pursuant to Section 7 shall remain in effect. If the purchase
of the Offered Securities by the Initial Purchasers is not consummated for any
reason other than solely because of the occurrence of any event specified in
clause (C), (D) or (E) of Section 6(b)(ii), the Company will reimburse the
Initial Purchasers for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if sent
to the Initial Purchasers will be mailed, delivered or telegraphed and confirmed
to the Initial Purchasers c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 3211 Jermantown Road,
Suite 700, Fairfax, VA 22030-2801, Attention: General Counsel, with a copy to
Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York,
NY 10019, Attention: Carl L. Reisner; PROVIDED, HOWEVER, that any notice to an
Initial Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed
and confirmed to such Initial Purchaser.
11. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the controlling
persons referred to in Section 7, and no other person will have any right or
obligation hereunder, except that holders of Offered Securities shall be
entitled to enforce the agreements for their benefit contained in the second and
third sentences of Section 5(b) hereof against the Company as if such holders
were parties thereto.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company, the Subsidiary Guarantors and the Initial Purchasers hereby
submit to the non-exclusive jurisdiction of the Federal and state courts in the
Borough of Manhattan in The City of New York in any suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby.
14
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company one of the counterparts hereof,
whereupon it will become a binding agreement between the Company, the Subsidiary
Guarantors and the several Initial Purchasers in accordance with its terms.
Very truly yours,
ANTEON CORPORATION,
by
-------------------------------------
Name:
Title:
VECTOR DATA SYSTEMS, INC.,
by
-------------------------------------
Name:
Title:
TECHMATICS, INC.,
by
-------------------------------------
Name:
Title:
The foregoing Purchase
Agreement is hereby confirmed
and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANK SECURITIES INC.
LEGG MASON WOOD WALKER, INCORPORATED
Acting on behalf of itself and as the Representative of the several Initial
Purchasers.
by: CREDIT SUISSE FIRST BOSTON CORPORATION
by
-------------------------------------
Name:
Title:
15
<PAGE>
SCHEDULE A
Principal Amount of
Initial Purchaser Offered Securities
- ----------------- ------------------
Credit Suisse First Boston Corporation............ $ 80,000,000
Deutsche Bank Securities Inc. ................... $ 15,000,000
Legg Mason Wood Walker, Incorporated ............ $ 5,000,000
Total...........................
-------------
$ 100,000,000
=============
16
<PAGE>
SCHEDULE B
FORM OF KPMG COMFORT LETTER
17
<PAGE>
SCHEDULE C
AGREEMENTS/INSTRUMENTS
1. Credit Agreement by and among Anteon Corporation and Vector Data
Systems, Inc., as Borrowers, and Mellon Bank, N.A., First Union Capital Markets
Group, Nationsbank, N.A. and Deutschebank AG, as Lenders, and Mellon Bank, N.A.,
as Agent, dated March 18, 1998, as amended by the Joinder Agreement and
Amendment No. 1 to Credit Agreement, dated as of May 29, 1998 and as further
amended by the Amendment No. 2 to Credit Agreement, dated as of November, 1998,
and as further amended by the Amendment No. 3 and Waiver, dated as of May 5,
1999.
18
<PAGE>
Exhibit 10.4
================================================================================
CREDIT AGREEMENT
dated as of June 23, 1999,
among
ANTEON CORPORATION,
THE LENDERS NAMED HEREIN
and
CREDIT SUISSE FIRST BOSTON,
as Lead Arranger and Administrative Agent
---------------------------
MELLON BANK, N.A.,
Co-Arranger, Collateral Agent and Syndication Agent
DEUTSCHE BANK AG, New York Branch
Documentation Agent
================================================================================
[CS&M Ref No. 5865-038]
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Defined Terms...........................................2
SECTION 1.02. Terms Generally........................................24
ARTICLE II
The Credits
SECTION 2.01. Commitments.............................................25
SECTION 2.02. Loans...................................................25
SECTION 2.03. Borrowing Procedure.....................................27
SECTION 2.04. Evidence of Debt; Repayment of Loans....................27
SECTION 2.05. Fees...................................................28
SECTION 2.06. Interest on Loans.......................................29
SECTION 2.07. Default Interest........................................29
SECTION 2.08. Alternate Rate of Interest..............................29
SECTION 2.09. Termination and Reduction of Commitments................29
SECTION 2.10. Conversion and Continuation of Borrowings..............30
SECTION 2.11. Repayment of Term Borrowings............................31
SECTION 2.12. Prepayment..............................................31
SECTION 2.13. Mandatory Prepayments...................................32
SECTION 2.14. Reserve Requirements; Change in Circumstances...........33
SECTION 2.15. Change in Legality......................................34
SECTION 2.16. Indemnity...............................................35
SECTION 2.17. Pro Rata Treatment......................................35
SECTION 2.18. Sharing of Setoffs......................................36
SECTION 2.19. Payments................................................36
SECTION 2.20. Taxes...................................................36
SECTION 2.21. Assignment of Commitments Under Certain Circumstances;
Duty to Mitigate.......................................38
SECTION 2.22. Swingline Loans.........................................39
SECTION 2.23. Letters of Credit.......................................40
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers....................................44
SECTION 3.02. Authorization..........................................44
SECTION 3.03. Enforceability..........................................45
<PAGE>
2
SECTION 3.04. Governmental Approvals; Contracts.......................45
SECTION 3.05. Financial Statements....................................45
SECTION 3.06. No Material Adverse Change..............................46
SECTION 3.07. Title to Properties; Possession Under Leases............46
SECTION 3.08. Subsidiaries............................................46
SECTION 3.09. Litigation; Compliance with Laws........................46
SECTION 3.10. Agreements..............................................47
SECTION 3.11. Federal Reserve Regulations.............................47
SECTION 3.12. Investment Company Act; Public Utility Holding Company
Act.....................................................47
SECTION 3.13. Use of Proceeds.........................................47
SECTION 3.14. Tax Returns.............................................47
SECTION 3.15. No Material Misstatements...............................47
SECTION 3.16. Employee Benefit Plans..................................47
SECTION 3.17. Environmental Matters...................................48
SECTION 3.18. Insurance...............................................49
SECTION 3.19. Security Documents......................................49
SECTION 3.20. Location of Real Property...............................49
SECTION 3.21. Labor Matters...........................................49
SECTION 3.22. Solvency................................................50
SECTION 3.23. Year 2000...............................................50
ARTICLE IV
Conditions of Lending
SECTION 4.01. All Credit Events.......................................50
SECTION 4.02. First Credit Event......................................51
ARTICLE V
Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties....................55
SECTION 5.02. Insurance...............................................55
SECTION 5.03. Obligations and Taxes...................................56
SECTION 5.04. Financial Statements, Reports, etc......................56
SECTION 5.05. Litigation and Other Notices............................59
SECTION 5.06. Employee Benefits.......................................59
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections.............................................59
SECTION 5.08. Use of Proceeds.........................................59
SECTION 5.09. Compliance with Environmental Laws......................59
SECTION 5.10. Preparation of Environmental Reports....................60
SECTION 5.11. Audits..................................................60
SECTION 5.12. Further Assurances......................................60
<PAGE>
3
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness............................................61
SECTION 6.02. Liens...................................................62
SECTION 6.03. Sale and Lease-Back Transactions........................63
SECTION 6.04. Investments, Loans and Advances.........................63
SECTION 6.05. Mergers, Consolidations, Sales of Assets and
Acquisitions............................................66
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends...........................66
SECTION 6.07. Transactions with Affiliates............................67
SECTION 6.08. Capital Expenditures....................................68
SECTION 6.09. Interest Coverage Ratio.................................68
SECTION 6.10. Fixed Charge Coverage Ratio.............................68
SECTION 6.11. Maximum Leverage Ratio..................................68
SECTION 6.12. Senior Leverage Ratio...................................69
SECTION 6.13. Minimum EBITDA..........................................69
SECTION 6.14. Limitation on Modifications of Indebtedness;
Modifications of Certificate of Incorporation, By-laws
and Certain Other Agreements, etc.......................69
SECTION 6.15. Limitation on Creation of Subsidiaries..................70
SECTION 6.16. Business................................................70
SECTION 6.17. Designated Senior Indebtedness..........................70
SECTION 6.18. Fiscal Year.............................................70
SECTION 6.19. Maintenance of Accounts.................................70
ARTICLE VII
Events of Default
ARTICLE VIII
The Administrative Agent and the Collateral Agent
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices.................................................75
SECTION 9.02. Survival of Agreement...................................76
SECTION 9.03. Binding Effect..........................................76
SECTION 9.04. Successors and Assigns..................................76
SECTION 9.05. Expenses; Indemnity.....................................80
SECTION 9.06. Right of Setoff.........................................81
SECTION 9.07. Applicable Law..........................................81
SECTION 9.08. Waivers; Amendment......................................81
SECTION 9.09. Interest Rate Limitation................................82
SECTION 9.10. Entire Agreement........................................82
<PAGE>
4
SECTION 9.11. WAIVER OF JURY TRIAL....................................83
SECTION 9.12. Severability............................................83
SECTION 9.13. Counterparts............................................83
SECTION 9.14. Headings................................................83
SECTION 9.15. Jurisdiction; Consent to Service of Process.............83
SECTION 9.16. Confidentiality.........................................84
Schedule 1.01(a) Subsidiary Guarantors
Schedule 2.01 Lenders and Commitments
Schedule 2.13(e) Excess Cash Flow Payments
Schedule 3.04 Government Contracts
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.17 Environmental Matters
Schedule 3.18 Insurance
Schedule 3.20 Real Property Owned In Fee
Schedule 4.02(a) Other Local Counsel
Schedule 4.02(f) Foreign Subsidiary Pledged Stock
Schedule 6.01 Outstanding Indebtedness on Closing Date
Schedule 6.02 Liens Existing on Closing Date
Schedule 6.04(m) Existing Investments
Exhibit A Form of Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Borrowing Request
Exhibit D Form of Indemnity, Subrogation and Contribution Agreement
Exhibit E Form of Pledge Agreement
Exhibit F Form of Security Agreement
Exhibit G Form of Subsidiary Guarantee Agreement
Exhibit H-1 Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
Exhibit H-2 Form of Opinion of Curtis L. Schehr, Esq., General Counsel of the
Borrower
Exhibit H-3 Form of Opinion of Local Counsel
Exhibit I Form of Compliance Certificate
Exhibit J Form of Borrowing Base/Non-Default Certificate
Exhibit K Form of Subordination Provisions
Exhibit L Form of Solvency Certificate
Exhibit M Form of Acknowledgment, Waiver and Consent of Minority Owner
<PAGE>
CREDIT AGREEMENT dated as of June 23, 1999, among
ANTEON CORPORATION, a Virginia corporation (the
"Borrower"), the Lenders (as defined in Article I),
CREDIT SUISSE FIRST BOSTON, a bank organized under the
laws of Switzerland, acting through its New York branch,
as issuing bank (in such capacity, the "Issuing Bank"),
and as administrative agent (in such capacity, the
"Administrative Agent") for the Lenders, MELLON BANK,
N.A., a national banking association, as syndication
agent (in such capacity, the "Syndication Agent"), as
swingline lender (in such capacity, the "Swingline
Lender"), and as collateral agent (in such capacity, the
"Collateral Agent") for the Lenders, and DEUTSCHE BANK
AG, New York Branch, as documentation agent (in such
capacity, the "Documentation Agent").
Pursuant to the Merger Agreement (such term and each other capitalized
term used but not defined herein having the meaning given it in Article I), Sub
will merge (the "Merger") with and into A&T, with A&T surviving such Merger as a
wholly owned Subsidiary of the Borrower. In connection with the Merger, the
existing stockholders and option holders of A&T will be entitled to receive an
aggregate of approximately $111,000,000 in cash (the "Merger Consideration"),
net of the exercise price of certain options.
The Borrower has requested the Lenders to extend credit in the form of (a)
Term Loans on the Closing Date, in an aggregate principal amount not in excess
of $60,000,000, and (b) Revolving Loans at any time and from time to time prior
to the Revolving Credit Maturity Date, in an aggregate principal amount at any
time outstanding not in excess of $120,000,000. The Borrower has requested the
Swingline Lender to extend credit, at any time and from time to time prior to
the Revolving Credit Maturity Date, in the form of Swingline Loans. The Borrower
has requested the Issuing Bank to issue Letters of Credit, in an aggregate face
amount at any time outstanding not in excess of $10,000,000, to support payment
obligations, performance guarantees and bid bonds incurred by the Borrower and
its Subsidiaries in the conduct of their business. The proceeds of the Term
Loans are to be used solely (a) to repay all amounts outstanding under the
Existing Credit Agreements and (b) to pay related fees and expenses. The
proceeds of the Senior Subordinated Notes and the Equity Contribution are to be
used solely (a) to pay the Merger Consideration and (b) to pay related fees and
expenses. The proceeds of the Revolving Loans and the Swingline Loans are to be
used solely for general corporate purposes, including refinancing existing
Indebtedness on the Closing Date and Permitted Acquisitions.
The Lenders are willing to extend such credit to the Borrower and the
Issuing Bank is willing to issue Letters of Credit for the account of the
Borrower on the terms and subject to the conditions set forth herein.
Accordingly, the parties hereto agree as follows:
<PAGE>
2
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"A&T" shall mean Analysis & Technology, Inc., a Connecticut corporation.
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any ABR Term Loan or ABR Revolving Loan.
"ABR Revolving Loan" shall mean any Revolving Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ABR Term Borrowing" shall mean a Borrowing comprised of ABR Term Loans.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Account" shall mean any right to payment for goods sold or leased or for
services rendered, whether or not earned by performance.
"Account Debtor" shall mean, with respect to any Account, the obligor with
respect to such Account.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in
effect for such Interest Period and (b) Statutory Reserves.
"Administrative Agent Fees" shall have the meaning assigned to such term
in Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit A, or such other form as may be supplied from time to
time by the Administrative Agent.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified; provided, however, that for purposes of Section 6.07, the term
"Affiliate" shall also include any person that directly or indirectly owns 10%
or more of any class of Equity Interests of the person specified or that is an
officer or director of the person specified.
"Agents" shall mean the Administrative Agent and the Collateral Agent.
"Aggregate Revolving Credit Exposure" shall mean the aggregate amount of
the Lenders' Revolving Credit Exposures.
<PAGE>
3
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the
Prime Rate in effect on such day less 1/4 of 1% and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms of the definition thereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the preceding sentence until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the
rate of interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate for dollars in effect at its principal
office in New York City; each change in the Prime Rate shall be effective on the
date such change is publicly announced as being effective. The term "Federal
Funds Effective Rate" shall mean, for any day, the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average of the quotations for
the day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Applicable Percentage" shall mean, for any day, with respect to any
Eurodollar Loan or ABR Loan, or with respect to the Commitment Fees, as the case
may be, the applicable percentage set forth below under the caption "Eurodollar
Spread", "ABR Spread" or "Fee Percentage", as the case may be, based upon the
Leverage Ratio as of the relevant date of determination (provided, that if
financial statements and a certificate with respect to the fourth fiscal quarter
in any year satisfying the requirements of paragraphs (b) and (g) of Section
5.04 shall be delivered to the Administrative Agent within 60 days after the end
of such fiscal quarter, then from the second Business Day following the date on
which such financial statements and certificate are so delivered until the
relevant date of determination following such fiscal quarter end the Applicable
Percentage shall be based upon the Leverage Ratio as of such fiscal quarter end,
as determined on the basis of such financial statements):
<TABLE>
<CAPTION>
================================================================================
Eurodollar Fee
Leverage Ratio Spread ABR Spread Percentage
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Category 1 3.25% 2.25% 0.500%
Greater than 4.75 to 1.00
- --------------------------------------------------------------------------------
Category 2 3.00% 2.00% 0.500%
Greater than 4.25 to 1.00
but less than or equal to
4.75 to 1.00
- --------------------------------------------------------------------------------
<PAGE>
4
<CAPTION>
================================================================================
Eurodollar Fee
Leverage Ratio Spread ABR Spread Percentage
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Category 3 2.75% 1.75% 0.375%
Greater than 3.50 to 1.00
but less than or equal to
4.25 to 1.00
- --------------------------------------------------------------------------------
Category 4 2.50% 1.50% 0.375%
Greater than 3.00 to 1.00
but less than or equal to
3.50 to 1.00
- --------------------------------------------------------------------------------
Category 5 2.25% 1.25% 0.375%
Greater than 2.50 to 1.00
but less than or equal to
3.00 to 1.00
- --------------------------------------------------------------------------------
Category 6 1.75% 0.75% 0.250%
Less than or equal to
2.50 to 1.00
================================================================================
</TABLE>
Except as set forth in the proviso immediately preceding the table above,
each change in the Applicable Percentage resulting from a change in the Leverage
Ratio shall be effective with respect to all Loans, Commitments and Letters of
Credit outstanding on and after the date of delivery to the Administrative Agent
of the financial statements and certificates required by Section 5.04(a) or (b)
and Section 5.04(g), respectively, indicating such change until the date
immediately preceding the next date of delivery of such financial statements and
certificates indicating another such change; provided, however, that (a) at any
time during which the Borrower has failed to deliver when due the financial
statements and certificates required by Section 5.04(a) or (b) and Section
5.04(g), respectively, or (b) at the option of the Agents or upon the request of
the Required Lenders, at any time after the occurrence and during the
continuance of an Event of Default, the Leverage Ratio shall be deemed to be in
Category 1 for purposes of determining the Applicable Percentage.
Notwithstanding the foregoing, from the date hereof through and including
December 31, 1999, the Leverage Ratio shall be deemed to be in Category 1 for
purposes of determining the Applicable Percentage.
"Approved Margin Stock" shall have the meaning assigned to such term in
Section 6.04(k).
"Asset Sale" shall mean the sale, transfer or other disposition (by way of
merger, casualty, condemnation or otherwise) by the Borrower or any of the
Subsidiaries to any person other than the Borrower or any Subsidiary Guarantor
of (a) any Equity Interests of any of the Subsidiaries (other than directors'
qualifying shares) or (b) any other assets of the Borrower or any of the
Subsidiaries (other than (i) inventory, excess, damaged, obsolete or worn out
assets, scrap and Permitted Investments, in each case disposed of in the
ordinary
<PAGE>
5
course of business, (ii) dispositions between or among Foreign Subsidiaries or
(iii) dispositions of Approved Margin Stock), provided that any asset sale or
series of related asset sales described in clause (b) above having a value not
in excess of $250,000 shall be deemed not to be an "Asset Sale" for purposes of
this Agreement.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit B or such other form as shall be approved by the
Administrative Agent.
"Assignment of Claims Act" shall mean the Assignment of Claims Act of
1940, as amended from time to time.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States of America.
"Borrowing" shall mean a group of Loans of a single Type made, converted
or continued by the Lenders on a single date and, in the case of Eurodollar
Loans, as to which a single Interest Period is in effect.
"Borrowing Base" shall mean an amount equal to the sum, without
duplication, of:
(a) 90% of the Net Value (as defined below) of Eligible Billed
Borrowing Base Receivables representing amounts due and owing from
Domestic Account Debtors that are outstanding less than 91 days from the
date of original invoice, plus
(b) 70% of the Net Value of Eligible Billed Borrowing Base
Receivables representing amounts due and owing from Foreign Account
Debtors that are not fully supported by a letter of credit, guarantees,
bonds or similar credit support issued by a financial institution in form
and substance reasonably acceptable to the Agents and that are outstanding
less than 61 days from the date of original invoice, plus
(c) 90% of the Net Value of Eligible Billed Borrowing Base
Receivables that represent amounts due and owing from Foreign Account
Debtors that are fully supported by letters of credit, guarantees, bonds
or similar credit support issued by financial institutions in form and
substance reasonably acceptable to the Agents and that are outstanding
less than 91 days from the date of original invoice, plus
(d) 75% of the Net Value of Eligible Unbilled Borrowing Base
Receivables; plus
(e) the Eligible Margin Stock Amount; plus
(f) until the second anniversary of the Closing Date, $10,000,000.
As used herein, the "Net Value" of an Eligible Billed Borrowing Base Receivable
or an Eligible Unbilled Borrowing Base Receivable shall be its face amount, net
of any discount for prompt payment (and net of any other amount representing
payment of finance charges, late charges or interest (however denominated)), and
net of any portion thereof that constitutes payment of sales, use or other
taxes. The Borrowing Base shall be computed monthly in accordance with Section
5.04(h). The Borrowing Base at any time in effect shall be determined by
reference to the Borrowing Base Certificate most recently delivered hereunder.
<PAGE>
6
"Borrowing Base/Non-Default Certificate" shall have the meaning assigned
to such term in Section 5.04(h).
"Borrowing Request" shall mean a request by the Borrower in accordance
with the terms of Section 2.03 and substantially in the form of Exhibit C, or
such other form as shall be approved by the Administrative Agent or the
Swingline Lender, as applicable.
"Business Day" shall mean any day other than a Saturday, Sunday or day on
which banks in New York City are authorized or required by law to close;
provided, however, that when used in connection with a Eurodollar Loan, the term
"Business Day" shall also exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
"Capital Expenditures" shall mean, for any period and with respect to any
person, all expenditures during such period by such person that would be
classified as capital expenditures in accordance with GAAP or are made in
property that is the subject of a Synthetic Lease to which such person becomes a
lessee party during such period, but excluding any such expenditure made (a) to
restore, replace or rebuild property to the condition of such property
immediately prior to any damage, loss, destruction or condemnation of such
property, to the extent such expenditure is made with insurance proceeds,
condemnation awards or indemnification or damage recovery proceeds relating to
any such damage, loss, destruction or condemnation, (b) with proceeds from the
sale or exchange of property to the extent utilized to purchase functionally
equivalent property or equipment, (c) as the purchase price of any Permitted
Acquisition or (d) with the proceeds of a substantially contemporaneous equity
contribution from Holdings.
"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" shall mean (a) prior to a Qualified Public Offering,
the failure by the Permitted Investors to own, directly or indirectly,
beneficially and of record, Equity Interests in the Borrower representing at
least 51% of the aggregate ordinary voting power represented by the issued and
outstanding Equity Interests in the Borrower; (b) after a Qualified Public
Offering, the failure by the Permitted Investors to own, directly or indirectly,
beneficially and of record, Equity Interests in the Borrower representing at
least 35% of the aggregate ordinary voting power represented by the issued and
outstanding Equity Interests in the Borrower; (c) after a Qualified Public
Offering, the acquisition of ownership, directly or indirectly, beneficially or
of record, by any person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the Securities and Exchange Commission
thereunder as in effect on the date hereof) other than the Permitted Investors,
of Equity Interests representing a greater percentage of the aggregate ordinary
voting power represented by the issued and outstanding Equity Interests in the
Borrower then held, directly or indirectly, beneficially and of record, by the
Permitted Investors; (d) occupation of a majority of the seats (other than
vacant seats) on the board of directors of Holdings by persons who were neither
(i) nominated by the board of directors of Holdings or any Permitted Investor
nor (ii) appointed by the directors so nominated; or (e) the occurrence of a
"Change of Control" or similar event (however denominated) under and as defined
in the Senior Subordinated Note Documents or any other Indebtedness of Holdings,
<PAGE>
7
the Borrower or any Subsidiary in an aggregate outstanding principal amount in
excess of $10,000,000.
"Change in Law" shall mean (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.15, by any lending office of such Lender or
by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Closing Date" shall mean the date of the first Credit Event.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall mean all the "Collateral" as defined in any Security
Document.
"Collateral Agent's Fee Letter" shall mean the Fee Letter dated April 29,
1999, between the Borrower and the Collateral Agent.
"Collateral Agent's Fees" shall have the meaning assigned to such term in
Section 2.05(b).
"Commitment" shall mean, with respect to any Lender, such Lender's
Revolving Credit Commitment, Term Loan Commitment and Swingline Commitment.
"Commitment Fee" shall have the meaning assigned to such term in Section
2.05(a).
"Compliance Certificate" shall have the meaning assigned to such term in
Section 5.04(g).
"Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated April 1999.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Credit Event" shall have the meaning assigned to such term in Section
4.01.
"Current Assets" shall mean, at any time, the consolidated current assets
(other than cash and Permitted Investments) of the Borrower and its consolidated
Subsidiaries.
"Current Liabilities" shall mean, at any time, the consolidated current
liabilities of the Borrower and its consolidated Subsidiaries at such time, but
excluding, without duplication, (a) the current portion of any long-term
Indebtedness and (b) outstanding Revolving Loans and Swingline Loans.
"Default" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
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8
"Disability" shall mean, for purposes of Section 6.06(a), the substantial
inability to perform the employee's then present duties and responsibilities by
reason of any medically determinable physical or mental impairment which can be
expected to last for a period of not less than 6 months in a 12-month period, or
any substantially similar definition contained in any stock option or stock
repurchase agreement between Holdings or the Borrower or any of its Subsidiaries
and any of their employees.
"dollars" or "$" shall mean lawful money of the United States of America.
"Domestic Account Debtor" shall mean an Account Debtor incorporated or
organized under the laws of, or with its principal place of business in, and any
Governmental Authority that is, the United States, any State thereof, any
municipality of any such State or the District of Columbia.
"Domestic Subsidiaries" shall mean all Subsidiaries incorporated or
organized under the laws of the United States of America, any State thereof or
the District of Columbia.
"EBITDA" for any period shall mean Net Income for such period, to which
shall be added back (a) the Interest Expense of the Borrower and its
consolidated Subsidiaries for such period to the extent deducted in calculating
Net Income for such period, (b) all charges against income calculated in
accordance with GAAP for Federal, state, local and foreign income taxes and
assessments, including all interest, penalties and additions imposed with
respect to such amounts, of the Borrower and its consolidated Subsidiaries for
such period, to the extent deducted in calculating Net Income for such period,
(c) the aggregate depreciation expense of the Borrower and its consolidated
Subsidiaries for such period, (d) the aggregate amortization expense of the
Borrower and its consolidated Subsidiaries for such period, and (e) Noncash
Nonrecurring Charges (only to the extent that such Noncash Nonrecurring Charges
do not exceed 10% of Net Income for such period), minus any noncash gain to the
extent included in determining Net Income, all as determined on a consolidated
basis in accordance with GAAP. For purposes of determining the Leverage Ratio
and the Senior Leverage Ratio as of September 30, 1999, December 31, 1999, and
March 31, 2000, EBITDA shall be deemed to be (i) $8,665,000 for the fiscal
quarter ended December 31, 1998, (ii) $8,829,000 for the fiscal quarter ended
March 31, 1999 and (iii) the sum of the actual EBITDA of the Borrower and of A&T
for the fiscal quarter ended June 30, 1999 (assuming the Merger had occurred on
April 1, 1999), plus $655,000.
"Eligible Billed Borrowing Base Receivables" shall mean all rights to
payment due and to become due to the Borrower or any Subsidiary Guarantor that
(a) constitute an "account" as defined in the Uniform Commercial Code as in
effect in the applicable jurisdiction, (b) represent amounts due and owing (i)
for products actually delivered or services actually performed or rendered by or
on behalf of the Borrower or any Subsidiary Guarantor pursuant to a written
contract or written agreement now or hereafter entered into by the Borrower or
any Subsidiary Guarantor and a person that is not an Affiliate of the Borrower,
or (ii) as interim billings or progress payments in accordance with fixed price
contracts between the Borrower or any Subsidiary Guarantor and a person that is
not an Affiliate of the Borrower, (c) have been properly billed, (d) arise in
the ordinary course of the Loan Parties' business, (e) are due, owing and not
subject to any defense, setoff or counterclaim, except if the person that is the
obligor under any such account has disputed liability or made any claim of
setoff or counterclaim, only the portion of the account subject to such defense,
setoff or counterclaim shall be deemed an Ineligible Receivable, (f) are not
final invoices and (g) are not Ineligible Receivables.
<PAGE>
9
"Eligible Margin Stock Amount" at any time, shall mean an amount equal to
75% of the fair market value of any Approved Margin Stock pledged to the
Collateral Agent to secure the Obligations. For purposes of the foregoing, the
fair market value of any Approved Margin Stock on any date shall be the average
of the closing prices on the principal U.S. securities exchange on which such
Approved Margin Stock is traded for the period of 20 consecutive trading days
preceding the date of determination. In the event (x) any Approved Margin Stock
is not listed or traded on a securities exchange or (y) the fair market value of
any Approved Margin Stock cannot be determined in accordance with the preceding
sentence because closing prices for such Approved Margin Stock are not
available, the Agents may use any reasonable estimate of the market value of
such Approved Margin Stock as of the close of business on the Business Day
preceding the date of determination.
"Eligible Unbilled Borrowing Base Receivables" shall mean rights to
payment due and to become due to the Borrower or any Subsidiary Guarantor (a)
under Government Contracts or (b) under contracts with any other Account Debtor
that are approved by the Agents from time to time (the "Approved Contracts"),
that (i) constitute an "account" as defined in the Uniform Commercial Code as in
effect in the applicable jurisdiction, (ii) in the case of Government Contracts,
are eligible to be billed to the Government in accordance with the applicable
Government Contract or are eligible to be billed to a prime contractor pursuant
to a subcontract under a contract between the prime contractor and the
Government, and in the case of Approved Contracts, are eligible to be billed to
the Account Debtor in accordance with the applicable Approved Contract, in any
case within 30 days of the "as of " date of the applicable Borrowing
Base/Non-Default Certificate (with no additional performance required by any
person, and no condition to payment by the Government or prime contractor or
Account Debtor, as applicable, other than receipt of an appropriate invoice),
(iii) have not been billed to the Government or the prime contractor or Account
Debtor under the Approved Contract, as applicable, solely as a result of timing
differences between the date the revenue is recognized on the applicable Loan
Party's books and the date the invoice is actually rendered, (iv) represent
revenue recognized on the books of the Borrower or any Subsidiary Guarantor not
more than 30 days prior to the "as of" date of the applicable Borrowing
Base/Non-Default Certificate, (v) may, in accordance with GAAP, be included as
current assets of the Borrower or any Subsidiary Guarantor, even though such
amounts have not been billed to the Government or the prime contractor or
Account Debtor under the Approved Contract, as applicable and (vi) are not
Ineligible Receivables.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"Environmental Claim" shall mean any written accusation, allegation,
notice of violation, claim, demand, order, directive, cost recovery action or
other cause of action by, or on behalf of, any Governmental Authority or any
person for damages, injunctive or equitable relief, personal injury (including
sickness, disease or death), Remedial Action costs, tangible or intangible
property damage, natural resource damages, nuisance, pollution, any adverse
effect on the environment caused by any Hazardous Material, or for fines,
penalties or restrictions, resulting from or based upon (a) the existence, or
the continuation of the existence, of a Release (including sudden or non-sudden,
accidental or non-accidental Releases), (b) exposure to any Hazardous Material,
(c) the presence, use, handling, transportation, storage, treatment or disposal
of any Hazardous Material or (d) the violation or alleged violation of any
Environmental Law or Environmental Permit.
<PAGE>
10
"Environmental Law" shall mean any and all applicable present and future
treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural resources, the management,
Release or threatened Release of any Hazardous Material or to health and safety
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq. (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. ss.ss. 6901 et seq., the Federal Water Pollution Control Act, as amended
by the Clean Water Act of 1977, 33 U.S.C. ss.ss. 1251 et seq., the Clean Air Act
of 1970, as amended 42 U.S.C. ss.ss. 7401 et seq., the Toxic Substances Control
Act of 1976, 15 U.S.C. ss.ss. 2601 et seq., the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. ss.ss. 651 et seq., the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. ss.ss. 300(f) et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 5101 et seq., and
any similar or implementing state, local or foreign law, and all amendments or
regulations promulgated under any of the foregoing.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"Equity Contribution" shall mean the purchase by Affiliates of
Caxton-Iseman Capital, Inc. of the Holdings Convertible Notes for not less than
$22,500,000 in cash, and the contribution by Holdings of the amount so received
to the Borrower as common equity.
"Equity Interests" shall mean shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a person.
"Equity Issuance" shall mean any issuance or sale by Holdings, the
Borrower or any Subsidiary of any Equity Interests of Holdings, the Borrower or
any Subsidiary, as applicable, or any obligations convertible into or
exchangeable for, or giving any person a right, option or warrant to acquire
such Equity Interests or such convertible or exchangeable obligations, except in
each case for (a) any issuance or sale to Holdings, the Borrower or any
Subsidiary, (b) any issuance or sale of Equity Interests or such convertible or
exchangeable obligations of Holdings to one or more Permitted Investors, (c) any
issuance of directors' qualifying shares, and (d) sales or issuances of common
stock of Holdings or the Borrower to management or employees of Holdings, the
Borrower or any Subsidiary under any employee stock option or stock purchase
plan or employee benefit plan in existence from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code, or solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
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11
"ERISA Event" shall mean (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to a Plan
(other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any of its ERISA
Affiliates from the PBGC or a plan administrator of any notice relating to the
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of
any liability with respect to the withdrawal from any Plan or Multiemployer
Plan; (g) the receipt by the Borrower or any of its ERISA Affiliates of any
notice, or the receipt by any Multiemployer Plan from the Borrower or any of its
ERISA Affiliates of any notice, concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA; or (h)
any Foreign Benefit Event.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Eurodollar Revolving Loan or Eurodollar
Term Loan.
"Eurodollar Revolving Loan" shall mean any Revolving Loan bearing interest
at a rate determined by reference to the Adjusted LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Term Borrowing" shall mean a Borrowing comprised of Eurodollar
Term Loans.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in Article
VII.
"Excess Cash Flow" shall mean, for any fiscal year of the Borrower, the
excess of (a) the sum, of (i) EBITDA for such fiscal year and (ii) reductions to
noncash working capital of the Borrower and its consolidated Subsidiaries for
such fiscal year (i.e., the decrease, if any, in Current Assets minus Current
Liabilities from the beginning to the end of such fiscal year) over (b) the sum,
without duplication, of (i) the amount of any Tax Payments payable with respect
to such fiscal year, (ii) cash interest paid (net of cash interest received) by
the Borrower and its consolidated Subsidiaries during such fiscal year, (iii)
Capital Expenditures made in cash in accordance with Section 6.08 during such
fiscal year, except to the extent financed with the proceeds of Indebtedness,
casualty or condemnation proceeds, (iv) permanent repayments of Indebtedness
made by the Borrower and its consolidated Subsidiaries during such fiscal year,
but only to the extent that such prepayments by their terms cannot be reborrowed
or redrawn and do not occur in connection with a refinancing of all or any
portion of such Indebtedness and (v) additions to noncash working capital for
such fiscal year (i.e., the increase, if any, in Current Assets minus Current
Liabilities from the beginning to the end of such fiscal year); provided that to
the extent otherwise included
<PAGE>
12
therein, the Net Cash Proceeds of Asset Sales shall be excluded from the
calculation of Excess Cash Flow.
"Excluded Taxes" shall mean, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.21(a)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.20(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.20(a).
"Existing A&T Credit Agreement" shall mean the Amended and Restated
Revolving Credit and Term Loan Agreement dated as of November 15, 1993, as
amended, between A&T and Fleet National Bank.
"Existing Anteon Credit Agreement" shall mean the Credit Agreement dated
as of March 18, 1998, by and among the Borrower, Vector Data Systems, Inc.,
Techmatics, Inc., various lenders, Mellon Bank, N.A., as agent, and First Union
Capital Markets Group and NationsBank, N.A., as co-documentation agents, as
amended.
"Existing Credit Agreements" shall mean the Existing Anteon Credit
Agreement and the Existing A&T Credit Agreement.
"Fee Letter" shall mean the Fee Letter dated March 7, 1999, between the
Borrower and the Administrative Agent.
"Fees" shall mean the Commitment Fees, the Administrative Agent's Fees,
the Collateral Agent's Fees, the L/C Participation Fees and the Issuing Bank
Fees.
"Financial Officer" of any person shall mean the chief financial officer,
principal accounting officer, Treasurer or Controller of such person.
"Fixed Charge Coverage Ratio" for any period shall mean the ratio of (a)
EBITDA plus the aggregate amount of all rent and lease payments made by the
Borrower and its consolidated Subsidiaries pursuant to operating leases minus
Capital Expenditures and Tax Payments for such period to (b) Fixed Charges for
such period.
"Fixed Charges" for any period shall mean, without duplication, the sum of
(a) Interest Expense (excluding amortization of deferred financing fees,
premiums or interest rate protection agreements and original issue discounts,
provided, however, that the aggregate amount of amortization excluded hereby
shall not exceed 5% of the aggregate amount of the financing giving rise to the
debt issuance costs associated with such amortization) for such period, plus (b)
the aggregate amount of all rent and lease payments made by the Borrower and its
consolidated Subsidiaries pursuant to operating leases for such
<PAGE>
13
period, plus (c) scheduled payments (whether or not made) on long term
Indebtedness (including Capital Lease Obligations) of the Borrower and its
consolidated Subsidiaries for such period, all as determined on a consolidated
basis in accordance with GAAP; provided that for clause (c) only, any loans or
advances to Holdings by the Borrower permitted under clause (iii) of the first
proviso of Section 6.06 relating to the payment of principal of the Seller
Purchase Money Note, shall be included in the definition of "Fixed Charges" for
the period in which such loans or advances are made.
"Foreign Account Debtor" shall mean any Account Debtor that is not a
Domestic Account Debtor.
"Foreign Benefit Event" shall mean, with respect to any Foreign Pension
Plan, (a) the existence of unfunded liabilities in excess of the amount
permitted under any applicable law, or in excess of the amount that would be
permitted absent a waiver from a Governmental Authority, (b) the failure to make
the required contributions or payments, under any applicable law, on or before
the due date for such contributions or payments, (c) the receipt of a notice by
a Governmental Authority relating to the intention to terminate any such Foreign
Pension Plan or to appoint a trustee or similar official to administer any such
Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension
Plan and (d) the incurrence of any liability in excess of $2,500,000 (or the
equivalent thereof in another currency) by the Borrower or any of its
Subsidiaries under applicable law on account of the complete or partial
termination of such Foreign Pension Plan or the complete or partial withdrawal
of any participating employer therein, or (e) the occurrence of any transaction
that is prohibited under any applicable law and could reasonably be expected to
result in the incurrence of any liability by the Borrower or any of its
Subsidiaries, or the imposition on the Borrower or any of its Subsidiaries of
any fine, excise tax or penalty resulting from any noncompliance with any
applicable law, in each case in excess of $2,500,000 (or the equivalent thereof
in another currency).
"Foreign Lender" shall mean any Lender that is organized under the laws of
a jurisdiction other than the United States of America, each State thereof and
the District of Columbia.
"Foreign Pension Plan" shall mean any plan, fund (including any
superannuation fund) or other similar program established or maintained outside
the United States by the Borrower or any one or more of its Subsidiaries
primarily for the benefit of employees of the Borrower or such Subsidiaries
residing outside the United States, which plan, fund or other similar program
provides, or results in, retirement income, a deferral of income in
contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic
Subsidiary.
"GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis.
"Government" shall mean the United States government or any department or
agency thereof.
"Governmental Authority" shall mean any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
<PAGE>
14
"Government Contracts" shall mean written contracts between the Borrower
or any Subsidiary Guarantor and the Government.
"Granting Lender" shall have the meaning specified in Section 9.04(i).
"Guarantee" of or by any person shall mean any obligation, contingent or
otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however, that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business.
"Hazardous Materials" shall mean all explosive or radioactive substances
or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" shall mean any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement, foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect against fluctuations in interest or currency exchange rates and not
entered into for speculation.
"Holdings" shall mean Azimuth Technologies, Inc., a Delaware corporation.
"Holdings Convertible Notes" shall mean the 12% subordinated pay-in-kind
convertible notes due 2010 of Holdings, in an original aggregate principal
amount of $22,500,000.
"IMC" shall mean Interactive Media Corp., a Delaware corporation and
wholly owned subsidiary of A&T.
"Inactive Subsidiary" shall mean any Subsidiary of the Borrower that (a)
does not conduct any business operations, (b) has assets with a total book value
not in excess of $10,000 and (c) does not have any Indebtedness outstanding.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid (other than solely on past due
amounts), (d) all obligations of such person under conditional sale or other
title retention agreements relating to property or assets purchased by such
person, (e) all obligations of such person issued or assumed as the deferred
purchase price of property or services (excluding trade accounts payable and
accrued obligations incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the
<PAGE>
15
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property owned or acquired by such person, whether or
not the obligations secured thereby have been assumed, (g) all Guarantees by
such person of Indebtedness of others, (h) all Capital Lease Obligations of such
person, (i) all obligations of such person in respect of interest rate
protection agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements and (j) all obligations of such person as an
account party in respect of letters of credit and bankers' acceptances. The
Indebtedness of any person shall include the Indebtedness of any partnership in
which such person is a general partner, except to the extent that, by its terms,
such Indebtedness is nonrecourse to such person.
"Indemnified Taxes" shall mean Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit D, among the Borrower, the Subsidiary Guarantors and the Collateral
Agent.
"Ineligible Receivables" shall mean all receivables that are (a) evidenced
by a promissory note or similar instrument; (b) owed or payable by an Account
Debtor that is more than 120 days past the last date set for payment in an
original invoice in the payment of 50% or more of the aggregate balance due from
such Account Debtor to the Borrower or a Subsidiary Guarantor; (c) owing from
any person that is the subject of any (i) suit, lien, levy or judgment which
could reasonably be expected to affect the collectability of such receivable, or
(ii) bankruptcy, insolvency or similar process or proceeding; (d) unbilled as a
result of cost variances, retainage provisions, "milestone" requirements or any
other reason, except for timing differences; (e) owed in a currency other than
dollars; or (f) deemed ineligible by either Agent, in its reasonable and good
faith discretion.
"Interest Coverage Ratio" for any period shall mean the ratio of EBITDA
for such period to the Interest Expense (excluding amortization of deferred
financing fees, premiums or interest rate protection agreements and original
issue discounts, provided, however, that the aggregate amount of amortization
excluded hereby shall not exceed 5% of the aggregate amount of the financing
giving rise to the debt issuance costs associated with such amortization) for
such period.
"Interest Expense" for any period shall mean the total interest expense of
the Borrower and its consolidated Subsidiaries (including amortization of
deferred financing fees, premiums or interest rate protection agreements and
original issue discounts), for such period determined on a consolidated basis in
accordance with GAAP.
"Interest Payment Date" shall mean (a) with respect to any ABR Loan (other
than a Swingline Loan), the last Business Day of each March, June, September and
December, (b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day that would have been an Interest Payment Date had successive
Interest Periods of three months' duration been applicable to such Borrowing,
and, in addition, the date of any prepayment of a Eurodollar Borrowing or
conversion of a Eurodollar Borrowing to an ABR Borrowing and (c) with respect to
any Swingline Loan, the day that such Loan is repaid or required to be repaid.
"Interest Period" shall mean, with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding
<PAGE>
16
day (or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect
(or such other period thereafter as the Borrower may request and all the Lenders
with Loans included in such Borrowing may agree); provided, however, that if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the succeeding Business Day unless, such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the preceding Business Day. Interest shall
accrue from and including the first day of an Interest Period to but excluding
the last day of such Interest Period.
"Investor Notes" shall mean (a) the promissory note made by Holdings in
favor of Azimuth Technologies, L.P., in the original principal amount of
$7,449,250; (b) the Promissory Note made by Holdings in favor of Noreen D.
Centracchio, in the original principal amount of $19,250; (c) the Promissory
Note made by Holdings in favor of Roger Gurner, in the original principal amount
of $19,250; and (d) the Promissory Note made by Holdings in favor of Howard W.
Dawson, in the original principal amount of $11,500.
"Issuing Bank" shall mean, as the context may require, (a) Credit Suisse
First Boston, with respect to Letters of Credit issued by it, (b) with respect
to each Existing Letter of Credit, the Lender that issued such Existing Letter
of Credit, (c) any other Lender that may become an Issuing Bank pursuant to
Section 2.23(i) or (k), with respect to Letters of Credit issued by such Lender,
or (d) collectively, all the foregoing.
"Issuing Bank Fees" shall have the meaning assigned to such term in
Section 2.05(c).
"L/C Commitment" shall mean the commitment of the Issuing Bank to issue
Letters of Credit pursuant to Section 2.23.
"L/C Disbursement" shall mean a payment or disbursement made by the
Issuing Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
principal amount of all L/C Disbursements that have not yet been reimbursed at
such time. The L/C Exposure of any Revolving Credit Lender at any time shall
mean its Pro Rata Percentage of the aggregate L/C Exposure at such time.
"L/C Participation Fee" shall have the meaning assigned to such term in
Section 2.05(c).
"Lenders" shall mean (a) the financial institutions listed on Schedule
2.01 (other than any such financial institution that has ceased to be a party
hereto pursuant to an Assignment and Acceptance) and (b) any financial
institution that has become a party hereto pursuant to an Assignment and
Acceptance. Unless the context clearly indicates otherwise, the term "Lenders"
shall include the Swingline Lender.
"Letter of Credit" shall mean any letter of credit issued pursuant to
Section 2.23.
"Leverage Ratio" shall mean, on any date, the ratio of Net Debt on such
date to EBITDA for the period of four consecutive fiscal quarters of the
Borrower most recently ended as of such date. Solely for purposes of this
definition, if, at any time the Leverage Ratio is being determined, the Borrower
or any Subsidiary shall have completed a Permitted
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17
Acquisition or Asset Sale since the beginning of the relevant four fiscal
quarter period, the Leverage Ratio shall be determined on a pro forma basis as
if such Permitted Acquisition or Asset Sale, and any related incurrence or
repayment of Indebtedness, had occurred at the beginning of such period and
taking into account any identifiable cost savings documented to the reasonable
satisfaction of the Administrative Agent.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
Interest Period, the rate per annum determined by the Administrative Agent at
approximately 11:00 a.m. (London time) on the date that is two Business Days
prior to the beginning of the relevant Interest Period by reference to the
British Bankers' Association Interest Settlement Rates for deposits in dollars
(as set forth by the Bloomberg Information Service or any successor thereto or
any other service selected by the Administrative Agent that has been nominated
by the British Bankers' Association as an authorized information vendor for the
purpose of displaying such rates) for a period equal to such Interest Period;
provided that, to the extent that an interest rate is not ascertainable pursuant
to the foregoing provisions of this definition, the "LIBO Rate" shall be the
interest rate per annum determined by the Administrative Agent to be the average
of the rates per annum at which deposits in dollars are offered for such
relevant Interest Period to major banks in the London interbank market in
London, England by the Administrative Agent at approximately 11:00 a.m. (London
time) on the date that is two Business Days prior to the beginning of such
Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan Documents" shall mean this Agreement, the Subsidiary Guarantee
Agreement, the Security Documents and the Indemnity, Subrogation and
Contribution Agreement.
"Loan Parties" shall mean Holdings, the Borrower and the Subsidiary
Guarantors.
"Loans" shall mean the Revolving Loans, the Term Loans and the Swingline
Loans.
"Margin Stock" shall have the meaning assigned to such term in Regulation
U.
"Material Adverse Effect" shall mean a materially adverse effect on (a)
the business, results of operations, condition (financial or otherwise) or
prospects of the Borrower and the Subsidiaries, taken as a whole, or (b) the
validity or enforceability of any of the Loan Documents or the rights, remedies
or benefits available to the Lenders thereunder.
"Material Contract" shall mean any and all Government Contracts and/or
other contracts or agreements of the Borrower or any Subsidiary involving
amounts in excess of $2,000,000.
"Merger" shall have the meaning given such term in the preamble to this
Agreement.
"Merger Agreement" shall mean the Agreement and Plan of Merger dated as of
March 7, 1999, by and among the Borrower, Sub and A&T, as amended, supplemented
or otherwise modified from time to time in accordance with the terms hereof and
thereof.
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18
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" shall mean (a) with respect to any Asset Sale, the
cash proceeds (including cash proceeds subsequently received (as and when
received) in respect of noncash consideration initially received), net of (i)
selling expenses (including reasonable broker's fees or commissions, legal fees,
transfer and similar taxes and the Borrower's good faith estimate of income
taxes paid or payable in connection with such sale), (ii) amounts provided as a
reserve, in accordance with GAAP, against any liabilities under any
indemnification obligations or purchase price adjustment associated with such
Asset Sale (provided that, to the extent and at the time any such amounts are
released from such reserve, such amounts shall constitute Net Cash Proceeds) and
(iii) the principal amount, premium or penalty, if any, interest and other
amounts on any Indebtedness for borrowed money which is secured by the asset
sold in such Asset Sale and which is repaid with such proceeds (other than any
such Indebtedness assumed by the purchaser of such asset); provided, however,
that, if (x) the Borrower shall deliver a certificate of a Financial Officer to
the Agents at the time of receipt thereof setting forth the Borrower's intent to
reinvest such proceeds in productive assets of a kind then used or usable in the
business of the Borrower and its Subsidiaries within 270 days of receipt of such
proceeds and (y) no Default or Event of Default shall have occurred and shall be
continuing at the time of such certificate or at the proposed time of the
application of such proceeds, such proceeds shall not constitute Net Cash
Proceeds except to the extent not so used or contractually committed to be used
at the end of such 270-day period, at which time such proceeds shall be deemed
to be Net Cash Proceeds; and (b) with respect to any issuance or disposition of
Indebtedness or any Equity Issuance, the cash proceeds thereof, net of all taxes
and customary fees, commissions, costs and other expenses incurred in connection
therewith.
"Net Debt" at any time shall mean (a) the total Indebtedness of the
Borrower and the Subsidiaries at such time (excluding Indebtedness of the type
described in clause (i) of the definition of such term and, except to the extent
of any unreimbursed drawings, clause (j) of the definition of such term), less
(b) the sum of (i) the amount at such time of all cash and Permitted Investments
of the Borrower and the Subsidiaries and (ii) the Eligible Margin Stock Amount.
"Net Income" shall mean, for any period, net income or loss of the
Borrower and the Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP; provided that there shall be excluded (a) the income of
any Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by the Subsidiary of that income is prohibited by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, statute, rule or governmental regulation applicable to the Subsidiary,
and (b) the income (or loss) of any person accrued prior to the date it becomes
a Subsidiary or is merged into or consolidated with the Borrower or any of the
Subsidiaries or the date that person's assets are acquired by the Borrower or
any of the Subsidiaries.
"Net Senior Debt" at any time shall mean the Net Debt at such time less,
to the extent included therein, the amount of any Indebtedness that is
subordinated to the Obligations pursuant to the subordination provisions
contained in Exhibit K or subordination provisions no less favorable to the
Lenders than those contained in the Senior Subordinated Note Indenture.
"Noncash Nonrecurring Charges" shall mean charges to income (a) that are
not expected to occur in the future and (b) whereby the underlying asset was not
created at least
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19
12 months before the period end in which the charge is reflected in the
Borrower's financial statements.
"Obligations" shall mean all obligations defined as "Obligations" in the
Subsidiary Guarantee Agreement and the Security Documents.
"Other Taxes" shall mean any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Perfection Certificate" shall mean the Perfection Certificate
substantially in the form of Annex 2 to the Security Agreement.
"Permitted Acquisition" shall have the meaning assigned to such term in
Section 6.04(i).
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from
the date of acquisition thereof and having, at such date of acquisition,
the highest credit rating obtainable from Standard & Poor's Ratings
Service or from Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within one year from the date of acquisition
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any Lender or any
commercial bank organized under the laws of the United States of America
or any State thereof that has a combined capital and surplus and undivided
profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not
more than 30 days for securities described in clause (a) above and entered
into with a financial institution satisfying the criteria of clause (c)
above;
(e) investments in municipal securities maturing within one year
from the date of acquisition thereof and having, at such date of
acquisition, a rating of at least "AA" by Standard & Poor's Ratings
Service or at least "Aa" by Moody's Investors Service, Inc.; and
(f) other short-term investments utilized by Foreign Subsidiaries in
accordance with normal investment practices for cash management in
investments of a type analogous to the foregoing.
<PAGE>
20
"Permitted Investors" shall mean (a) Caxton Corporation, Frederick J.
Iseman, Steven M. Lefkowitz, Joseph A. Kampf, Robert A. Ferris and any other
person who is a Controlled Affiliate of any of the foregoing and any member of
senior management of the Borrower on the Closing Date and (ii) any Related Party
of any of the foregoing.
"person" shall mean any natural person, corporation, business trust, joint
venture, association, company, limited liability company, partnership or
government, or any agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" shall mean the Pledge Agreement, substantially in the
form of Exhibit E, between the Borrower, Holdings, the Subsidiaries party
thereto and the Collateral Agent for the benefit of the Secured Parties.
"Properties" shall have the meaning specified in Section 3.17.
"Pro Rata Percentage" of any Revolving Credit Lender at any time shall
mean the percentage of the Total Revolving Credit Commitment represented by such
Lender's Revolving Credit Commitment.
"Qualified Public Offering" shall mean an underwritten public offering of
common stock of, and by, Holdings pursuant to a registration statement filed
with the Securities and Exchange Commission in accordance with the Securities
Act of 1933, as amended, which public equity offering results in gross proceeds
to Holdings of not less than $50,000,000.
"Register" shall have the meaning given such term in Section 9.04(d).
"Regulation T" shall mean Regulation T of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Related Fund" shall mean, with respect to any Lender that is a fund that
invests in bank loans, any other fund that invests in bank loans and is advised
or managed by the same investment advisor as such Lender or by an Affiliate of
such investment advisor.
"Related Party" shall mean (a) any controlling stockholder, general
partner, wholly owned Subsidiary, or spouse or immediate family member (in the
case of an individual) of any Permitted Investor or (b) any trust, corporation,
partnership or other entity, all the beneficiaries, stockholders, partners or
owners of which consist solely of one or more Permitted Investors and/or such
other persons referred to in the immediately preceding clause (a).
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21
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Remedial Action" shall mean (a) "remedial action" as such term is defined
in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any
Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the environment;
(ii) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not migrate or endanger or threaten to
endanger public health, welfare or the environment; or (iii) perform studies and
investigations in connection with, or as a precondition to, (i) or (ii) above.
"Repayment Date" shall have the meaning given such term in Section 2.11.
"Required Lenders" shall mean, at any time, Lenders having Loans
(excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused
Revolving Credit and Term Loan Commitments representing greater than 50% of the
sum of all outstanding Loans (excluding Swingline Loans), L/C Exposure,
Swingline Exposure and unused Revolving Credit and Term Loan Commitments at such
time.
"Responsible Officer" of any person shall mean any executive officer or
Financial Officer of such person and any other officer or similar official
thereof responsible for the administration of the obligations of such person in
respect of this Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving
Loans.
"Revolving Credit Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Revolving Loans hereunder as set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Revolving Credit Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04.
"Revolving Credit Exposure" shall mean, with respect to any Lender at any
time, the aggregate principal amount at such time of all outstanding Revolving
Loans of such Lender, plus the aggregate amount at such time of such Lender's
L/C Exposure, plus the aggregate amount at such time of such Lender's Swingline
Exposure.
"Revolving Credit Lender" shall mean a Lender with a Revolving Credit
Commitment.
"Revolving Credit Maturity Date" shall mean June 30, 2005.
"Revolving Loans" shall mean the revolving loans made by the Lenders to
the Borrower pursuant to clause (b) of Section 2.01. Each Revolving Loan shall
be a Eurodollar Revolving Loan or an ABR Revolving Loan.
"Secured Parties" shall have the meaning assigned to such term in the
Security Agreement.
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22
"Security Agreement" shall mean the Security Agreement, substantially in
the form of Exhibit F, among the Borrower, the Subsidiaries party thereto and
the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" shall mean the Security Agreement, the Pledge
Agreement and each of the security agreements, mortgages and other instruments
and documents executed and delivered pursuant to any of the foregoing or
pursuant to Section 5.12.
"Seller Purchase Money Note" shall mean the promissory note made by
Holdings in favor of Ogden Technology Services Corporation, in the outstanding
principal amount of $3,650,000.
"Senior Leverage Ratio" shall mean, on any date, the ratio of Net Senior
Debt on such date to EBITDA for the period of four consecutive fiscal quarters
of the Borrower most recently ended as of such date. Solely for purposes of this
definition, if, at any time the Senior Leverage Ratio is being determined, the
Borrower or any Subsidiary shall have completed a Permitted Acquisition or Asset
Sale since the beginning of the relevant four fiscal quarter period, the Senior
Leverage Ratio shall be determined on a pro forma basis as if such Permitted
Acquisition or Asset Sale, and any related incurrence or repayment of
Indebtedness, had occurred at the beginning of such period and taking into
account any identifiable cost savings documented to the reasonable satisfaction
of the Administrative Agent.
"Senior Subordinated Note Documents" shall mean the Senior Subordinated
Notes, the Senior Subordinated Note Indenture and all other documents executed
and delivered with respect to the Senior Subordinated Notes or the Senior
Subordinated Note Indenture.
"Senior Subordinated Note Indenture" shall mean the indenture dated as of
May 11, 1999, between the Borrower, the Subsidiary Guarantors and IBJ Whitehall
Bank and Trust Company, as trustee, as in effect on the Closing Date and as
thereafter amended from time to time in accordance with the requirements hereof
and thereof.
"Senior Subordinated Notes" shall mean the Borrower's 12% Senior
Subordinated Notes Due 2009 in the initial principal amount of $100,000,000
issued pursuant to the Senior Subordinated Note Indenture and any notes issued
by the Borrower in exchange for, and as contemplated by, the Senior Subordinated
Notes with substantially identical terms as the Senior Subordinated Notes.
"SPC" shall have the meaning specified in Section 9.04(i).
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board for Eurocurrency Liabilities (as defined in Regulation
D of the Board). Such reserve percentages shall include those imposed pursuant
to such Regulation D. Eurodollar Loans shall be deemed to constitute
Eurocurrency Liabilities and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D. Statutory Reserves
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"Sub" shall mean Buffalo Acquisition Corporation, a Connecticut
corporation.
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23
"subsidiary" shall mean, with respect to any person (herein referred to as
the "parent"), any corporation, partnership, association or other business
entity of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power are, at the time
any determination is being made, owned, controlled or held, by the parent or one
or more subsidiaries of the parent or by the parent and one or more subsidiaries
of the parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Subsidiary Guarantee Agreement" shall mean the Subsidiary Guarantee
Agreement, substantially in the form of Exhibit G, made by the Subsidiary
Guarantors in favor of the Collateral Agent for the benefit of the Secured
Parties.
"Subsidiary Guarantor" shall mean each Subsidiary of the Borrower listed
on Schedule 1.01(a), and each other Subsidiary that is or becomes a party to a
Subsidiary Guarantee Agreement.
"Supermajority Lenders" shall mean, at any time, Lenders having Loans
(excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused
Revolving Credit and Term Loan Commitments representing at least two-thirds of
the sum of all outstanding Loans (excluding Swingline Loans), L/C Exposure,
Swingline Exposure and unused Revolving Credit and Term Loan Commitments at such
time.
"Swingline Commitment" shall mean the commitment of the Swingline Lender
to make loans pursuant to Section 2.22, as the same may be reduced from time to
time pursuant to Section 2.09 or Section 2.22.
"Swingline Exposure" shall mean at any time the aggregate principal amount
at such time of all outstanding Swingline Loans. The Swingline Exposure of any
Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the
aggregate Swingline Exposure at such time.
"Swingline Loan" shall mean any loan made by the Swingline Lender pursuant
to Section 2.22.
"Synthetic Lease" shall mean any synthetic lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet financing product
where the transaction is considered indebtedness for borrowed money for Federal
income tax purposes but is classified as an operating lease in accordance with
GAAP for financial reporting purposes.
"Taxes" shall mean any and all present or future taxes, levies, imposts,
duties, deductions, charges, liabilities or withholdings imposed by any
Governmental Authority.
"Tax Payments" shall mean payments in cash in respect of Federal, state,
local and foreign income taxes and assessments, including all interest,
penalties and additions imposed with respect to such amounts, paid or payable by
or on behalf of the Borrower and its consolidated Subsidiaries.
"Term Borrowing" shall mean a Borrowing comprised of Term Loans.
"Term Loan Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Term Loans hereunder as set forth on Schedule
2.01, or in the
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24
Assignment and Acceptance pursuant to which such Lender assumed its Term Loan
Commitment, as applicable, as the same may be (a) reduced from time to time
pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04.
"Term Loan Maturity Date" shall mean June 30, 2005.
"Term Loans" shall mean the term loans made by the Lenders to the Borrower
pursuant to Section 2.01. Each Term Loan shall be a Eurodollar Term Loan or an
ABR Term Loan.
"Total Revolving Credit Commitment" shall mean, at any time, the aggregate
amount of the Revolving Credit Commitments, as in effect at such time.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, the term "Rate" shall include the
Adjusted LIBO Rate and the Alternate Base Rate.
"wholly owned Subsidiary" of any person shall mean a subsidiary of such
person of which securities (except for directors' qualifying shares) or other
ownership interests representing 100% of the equity or 100% of the ordinary
voting power are, at the time any determination is being made, owned, controlled
or held by such person or one or more wholly owned subsidiaries of such person
or by such person and one or more wholly owned subsidiaries of such person.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, (a) any reference in this Agreement to any Loan Document shall
mean such document as amended, restated, supplemented or otherwise modified from
time to time and (b) all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that if the Borrower notifies the Administrative Agent that the
Borrower wishes to amend any covenant in Article VI or any related definition to
eliminate the effect of any change in GAAP occurring after the date of this
Agreement on the operation of such covenant (or if the Administrative Agent
notifies the Borrower that the Required Lenders wish to amend Article VI or any
related definition for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Lenders.
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25
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, each Lender agrees,
severally and not jointly, (a) to make a Term Loan to the Borrower on the
Closing Date in a principal amount not to exceed its Term Loan Commitment, and
(b) to make Revolving Loans to the Borrower, at any time and from time to time
on or after the date hereof, and until the earlier of the Revolving Credit
Maturity Date and the termination of the Revolving Credit Commitment of such
Lender in accordance with the terms hereof, in an aggregate principal amount at
any time outstanding that will not result in such Lender's Revolving Credit
Exposure exceeding the lesser of (i) such Lender's Revolving Credit Commitment
and (ii) such Lender's Pro Rata Percentage of the Borrowing Base, each as in
effect at such time. Within the limits set forth in clause (b) of the preceding
sentence and subject to the terms, conditions and limitations set forth herein,
the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts paid or
prepaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan (other than Swingline Loans) shall be
made as part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their applicable Commitments; provided, however, that the
failure of any Lender to make any Loan shall not in itself relieve any other
Lender of its obligation to lend hereunder (it being understood, however, that
no Lender shall be responsible for the failure of any other Lender to make any
Loan required to be made by such other Lender). Except for Loans deemed made
pursuant to Section 2.02(f), the Loans comprising any Borrowing shall be in an
aggregate principal amount that is (i) an integral multiple of $1,000,000 or
(ii) equal to the remaining available balance of the applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant
to Section 2.03. Each Lender may at its option make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement. Borrowings of more than one Type may be outstanding at the same time;
provided, however, that the Borrower shall not be entitled to request any
Borrowing that, if made, would result in more than eight Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Eurodollar
Borrowings having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Borrowings.
(c) Except with respect to Loans made pursuant to Section 2.02(f), each
Lender shall make each Loan to be made by it hereunder on the proposed date
thereof by wire transfer of immediately available funds to such account in New
York City as the Administrative Agent may designate not later than 11:00 a.m.,
New York City time, in the case of a Eurodollar Borrowing, or 1:00 p.m., New
York City time, in the case of an ABR Borrowing, and the Administrative Agent
shall promptly credit the amounts so received to an account in the name of the
Borrower, maintained with the Administrative Agent and designated by the
Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur
on such
<PAGE>
26
date because any condition precedent herein specified shall not have been met,
return the amounts so received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall have so made funds
available then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, such Lender and the Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such Borrowing and
(ii) in the case of such Lender, a rate determined by the Administrative Agent
to represent its cost of overnight or short-term funds (which determination
shall be conclusive absent manifest error). If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.
(e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Revolving Credit Borrowing if the Interest
Period requested with respect thereto would end after the Revolving Credit
Maturity Date.
(f) If the Issuing Bank shall not have received from the Borrower the
payment required to be made by Section 2.23(e) within the time specified in such
Section, the Issuing Bank will promptly notify the Administrative Agent of the
L/C Disbursement and the Administrative Agent will promptly notify each
Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage
thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately
available funds to the Administrative Agent not later than 2:00 p.m., New York
City time, on such date (or, if such Revolving Credit Lender shall have received
such notice later than 12:00 (noon), New York City time, on any day, not later
than 11:00 a.m., New York City time, on the immediately following Business Day),
an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement
(it being understood that such amount shall be deemed to constitute an ABR
Revolving Loan of such Lender and such payment shall be deemed to have reduced
the L/C Exposure), and the Administrative Agent will promptly pay to the Issuing
Bank amounts so received by it from the Revolving Credit Lenders. The
Administrative Agent will promptly pay to the Issuing Bank any amounts received
by it from the Borrower pursuant to Section 2.23(e) prior to the time that any
Revolving Credit Lender makes any payment pursuant to this paragraph (f); any
such amounts received by the Administrative Agent thereafter will be promptly
remitted by the Administrative Agent to the Revolving Credit Lenders that shall
have made such payments and to the Issuing Bank, as their interests may appear.
If any Revolving Credit Lender shall not have made its Pro Rata Percentage of
such L/C Disbursement available to the Administrative Agent as provided above,
such Lender and the Borrower severally agree to pay interest on such amount, for
each day from and including the date such amount is required to be paid in
accordance with this paragraph to but excluding the date such amount is paid, to
the Administrative Agent for the account of the Issuing Bank at (i) in the case
of the Borrower, a rate per annum equal to the interest rate applicable to
Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such
Lender, for the first such day, the Federal Funds Effective Rate, and for each
day thereafter, the Alternate Base Rate.
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27
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other
than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(f), as to
which this Section 2.03 shall not apply), the Borrower shall hand deliver or fax
to the Administrative Agent a duly completed Borrowing Request (a) in the case
of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before a proposed Borrowing, and (b) in the case of an ABR
Borrowing, not later than 12:00 noon, New York City time, one Business Day
before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall
be signed by or on behalf of the Borrower and shall specify the following
information: (i) whether the Borrowing then being requested is to be a Term
Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a
Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which
shall be a Business Day), (iii) the number and location of the account to which
funds are to be disbursed (which shall be an account that complies with the
requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if
such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect
thereto; provided, however, that, notwithstanding any contrary specification in
any Borrowing Request, each requested Borrowing shall comply with the
requirements set forth in Section 2.02. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing
is specified in any such notice, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration. The Administrative Agent
shall promptly advise the applicable Lenders of any notice given pursuant to
this Section 2.03 (and the contents thereof), and of each Lender's portion of
the requested Borrowing.
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The Borrower
hereby unconditionally promises to pay to (i) the Administrative Agent (x) for
the account of each Lender holding Term Loans, the principal amount of each Term
Loan of such Lender as provided in Section 2.11 and (y) for the account of each
Revolving Credit Lender, the then unpaid principal amount of each Revolving Loan
of such Lender on the Revolving Credit Maturity Date and (ii) to the Swingline
Lender, the then unpaid principal amount of each Swingline Loan on the Revolving
Credit Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from the Borrower or any Subsidiary Guarantor and each Lender's share
thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) above shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms.
(e) Any Lender may request that Loans made by it hereunder be evidenced by
a promissory note. In such event, the Borrower shall execute and deliver to such
Lender a
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promissory note payable to such Lender and its registered assigns and in a form
and substance reasonably acceptable to the Administrative Agent and the
Borrower. Notwithstanding any other provision of this Agreement, in the event
any Lender shall request and receive such a promissory note, the interests
represented by such note shall at all times (including after any assignment of
all or part of such interests pursuant to Section 9.04) be represented by one or
more promissory notes payable to the payee named therein or its registered
assigns.
SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender, through
the Administrative Agent, on the last day of March, June, September and December
in each year and on each date on which any Commitment of such Lender shall
expire or be terminated as provided herein, a commitment fee (a "Commitment
Fee") equal to the Applicable Percentage per annum in effect from time to time
on the daily unused amount of the Commitments of such Lender (other than the
Swingline Commitment) during the preceding quarter (or other period commencing
with the date hereof or ending with the Revolving Credit Maturity Date or the
date on which the Commitments of such Lender shall expire or be terminated). All
Commitment Fees shall be computed on the basis of the actual number of days
elapsed in a year of 360 days. The Commitment Fee due to each Lender shall
commence to accrue on the date hereof and shall cease to accrue on the date on
which the Commitment of such Lender shall expire or be terminated as provided
herein. For purposes of calculating Commitment Fees only, no portion of the
Revolving Credit Commitments shall be deemed utilized under Section 2.17 as a
result of outstanding Swingline Loans.
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, the administration fees set forth in the Fee Letter at the times and in
the amounts specified therein (the "Administrative Agent Fees"). The Borrower
agrees to pay to the Collateral Agent, for its own account, the collateral
agent's fees set forth in the Collateral Agent's Fee Letter at the times and in
the amounts specified therein (the "Collateral Agent's Fees").
(c) The Borrower agrees to pay (i) to each Revolving Credit Lender,
through the Administrative Agent, on the last Business Day of March, June,
September and December of each year and on the date on which the Revolving
Credit Commitment of such Lender shall be terminated as provided herein, a fee
(an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of
the average daily aggregate L/C Exposure (excluding the portion thereof
attributable to unreimbursed L/C Disbursements) during the preceding quarter (or
shorter period commencing with the date hereof or ending with the Revolving
Credit Maturity Date or the date on which all Letters of Credit have been
canceled or have expired and the Revolving Credit Commitments of all Lenders
shall have been terminated) at a rate equal to the Applicable Percentage from
time to time used to determine the interest rate on Revolving Credit Borrowings
comprised of Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing
Bank with respect to each Letter of Credit the standard fronting, issuance and
drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank
Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on
the basis of the actual number of days elapsed in a year of 360 days.
(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, except that the Issuing Bank Fees shall be paid directly to
the Issuing Bank. Once paid, none of the Fees shall be refundable under any
circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section
2.07, the Loans comprising each ABR Borrowing, including each Swingline Loan,
shall bear interest
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(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when the Alternate Base Rate is determined by
reference to the Prime Rate and over a year of 360 days at all other times and
calculated from and including the date of such Borrowing to but excluding the
date of repayment thereof) at a rate per annum equal to the Alternate Base Rate
plus the Applicable Percentage in effect from time to time.
(b) Subject to the provisions of Section 2.07, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Percentage in effect from time to time.
(c) Interest on each Loan shall be payable to the Administrative Agent on
the Interest Payment Dates applicable to such Loan except as otherwise provided
in this Agreement. The applicable Alternate Base Rate or Adjusted LIBO Rate
shall be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error.
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, or under any other Loan Document,
the Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus
2.00% per annum and (b) in all other cases, at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be, when determined by reference to the Prime Rate and over a year
of 360 days at all other times) equal to the rate that would be applicable to an
ABR Revolving Loan plus 2.00%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Loans comprising
such Borrowing are not generally available in the London interbank market, or
that the rates at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to a majority in interest of the Lenders
making or maintaining such Eurodollar Loans during such Interest Period, or that
reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the
Administrative Agent shall, as soon as practicable thereafter, give written or
fax notice of such determination to the Borrower and the Lenders. In the event
of any such determination, until the Administrative Agent shall have advised the
Borrower and the Lenders that the circumstances giving rise to such notice no
longer exist (which the Administrative Agent agrees to do as soon as practicable
after such circumstances cease to exist), any request by the Borrower for a
Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a
request for an ABR Borrowing. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The Term Loan
Commitments shall automatically terminate at 5:00 p.m., New York City time, on
the Closing Date. The Revolving Credit Commitments, the Swingline Commitment and
the L/C Commitment shall automatically terminate on the Revolving Credit
Maturity Date. Notwithstanding the foregoing, all the Commitments shall
automatically terminate at 5:00 p.m., New York City time, on July 31, 1999, if
the initial Credit Event shall not have occurred by such time.
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(b) Upon at least three Business Days' prior irrevocable written or fax
notice to the Administrative Agent, the Borrower may at any time in whole
permanently terminate, or from time to time in part permanently reduce, the Term
Loan Commitments or the Revolving Credit Commitments; provided, however, that
(i) each partial reduction of the Term Loan Commitments or the Revolving Credit
Commitments shall be in an integral multiple of $1,000,000 and (ii) the Total
Revolving Credit Commitment shall not be reduced to an amount that is less than
the sum of the Aggregate Revolving Credit Exposure at the time.
(c) Each reduction in the Term Loan Commitments or the Revolving Credit
Commitments hereunder shall be made ratably among the Lenders in accordance with
their respective applicable Commitments. The Borrower shall pay to the
Administrative Agent for the account of the applicable Lenders, on the date of
each termination or reduction, the Commitment Fees on the amount of the
Commitments so terminated or reduced accrued to but excluding the date of such
termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower
shall have the right at any time upon prior irrevocable notice to the
Administrative Agent (a) not later than 12:00 (noon), New York City time, on the
day of conversion, to convert any Eurodollar Borrowing into an ABR Borrowing,
(b) not later than 10:00 a.m., New York City time, three Business Days prior to
conversion or continuation, to convert any ABR Borrowing into a Eurodollar
Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for
an additional Interest Period, and (c) not later than 10:00 a.m., New York City
time, three Business Days prior to conversion, to convert the Interest Period
with respect to any Eurodollar Borrowing to another permissible Interest Period,
subject in each case to the following:
(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Type and/or Interest Period for such Borrowing resulting from such
conversion; accrued interest on any Eurodollar Loan (or portion thereof)
being converted shall be paid by the Borrower at the time of conversion;
(iv) if any Eurodollar Borrowing is converted at a time other than
the end of the Interest Period applicable thereto, the Borrower shall pay,
upon demand, any amounts due to the Lenders pursuant to Section 2.16;
(v) any portion of a Borrowing maturing or required to be repaid in
less than one month may not be converted into or continued as a Eurodollar
Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
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(vii) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than a Repayment Date occurring on or after
the first day of such Interest Period if, after giving effect to such
selection, the aggregate outstanding amount of (A) the Eurodollar Term
Borrowings with Interest Periods ending on or prior to such Repayment Date
and (B) the ABR Term Borrowings would not be at least equal to the
principal amount of Term Borrowings to be paid on such Repayment Date; and
(viii) upon notice to the Borrower from the Administrative Agent
given at the request of the Required Lenders, after the occurrence and
during the continuance of a Default or Event of Default, no outstanding
Loan may be converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section 2.10 shall be irrevocable and shall
refer to this Agreement and specify (i) the identity and amount of the Borrowing
that the Borrower requests be converted or continued, (ii) whether such
Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR
Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such Borrowing is to be
converted to or continued as a Eurodollar Borrowing, the Interest Period with
respect thereto. If no Interest Period is specified in any such notice with
respect to any conversion to or continuation as a Eurodollar Borrowing, the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. The Administrative Agent shall advise the Lenders of any notice given
pursuant to this Section 2.10 and of each Lender's portion of any converted or
continued Borrowing. If the Borrower shall not have given notice in accordance
with this Section 2.10 to continue any Eurodollar Borrowing into a subsequent
Interest Period (and shall not otherwise have given notice in accordance with
this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end
of the Interest Period applicable thereto (unless repaid pursuant to the terms
hereof), automatically be converted into an ABR Borrowing.
SECTION 2.11. Repayment of Term Borrowings. (a) The Term Borrowings shall
be payable as to principal in 17 consecutive installments payable on the last
Business Day of March, June, September and December of each year, commencing on
the last Business Day in June 2001 and ending on the Term Loan Maturity Date
(each such date being called a "Repayment Date"). Each of the first 16
installments shall be in an amount equal to 4.6875% of the initial aggregate
principal amount of the Term Borrowings, with the balance due and payable on the
Term Loan Maturity Date.
(b) Each payment of Term Borrowings pursuant to this Section 2.11 shall be
accompanied by accrued interest on the principal amount paid to but excluding
the date of payment.
SECTION 2.12. Prepayment. (a) The Borrower shall have the right at any
time and from time to time to prepay any Borrowing, in whole or in part, upon at
least three Business Days' prior written or fax notice (or telephone notice
promptly confirmed by written or fax notice) in the case of Eurodollar Loans, or
written or fax notice (or telephone notice promptly confirmed by written or fax
notice) on or prior to the date of prepayment in the case of ABR Loans, to the
Administrative Agent before 11:00 a.m., New York City time; provided, however,
that each partial prepayment shall be in an amount that is an integral multiple
of $1,000,000.
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(b) Optional prepayments of Term Loans shall be applied pro rata against
the remaining scheduled installments of principal due in respect of the Term
Loans.
(c) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing by the amount
stated therein on the date stated therein. All prepayments under this Section
2.12 shall be subject to Section 2.16 but otherwise without premium or penalty.
All prepayments of Eurodollar Loans under this Section 2.12 shall be accompanied
by accrued interest on the principal amount being prepaid to the date of
payment. Interest on ABR Loans prepaid under this Section 2.12 shall be paid in
accordance with Section 2.06(c).
SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination
of all the Revolving Credit Commitments, the Borrower shall, on the date of such
termination, repay or prepay all its outstanding Revolving Credit Borrowings and
all outstanding Swingline Loans and replace all outstanding Letters of Credit
and/or deposit an amount equal to the L/C Exposure in cash in a cash collateral
account established with the Collateral Agent for the benefit of the Secured
Parties. In the event of any partial reduction of the Revolving Credit
Commitments, then (i) at or prior to the effective date of such reduction, the
Administrative Agent shall notify the Borrower and the Revolving Credit Lenders
of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii)
if the Aggregate Revolving Credit Exposure would exceed the Total Revolving
Credit Commitment after giving effect to such reduction or termination, then the
Borrower shall, on the date of such reduction or termination, repay or prepay
Revolving Credit Borrowings or Swingline Loans (or a combination thereof) and/or
replace or cash collateralize outstanding Letters of Credit in an amount
sufficient to eliminate such excess.
(b) If on any date the Aggregate Revolving Credit Exposure shall exceed
the Borrowing Base, the Borrower shall on such date repay or prepay Revolving
Credit Borrowings or Swingline Loans (or a combination thereof) and/or replace
or cash collateralize outstanding Letters of Credit in an amount sufficient to
eliminate such excess.
(c) Not later than the third Business Day following the completion of any
Asset Sale, the Borrower shall apply 100% of the Net Cash Proceeds received with
respect thereto to prepay outstanding Term Loans in accordance with Section
2.13(g).
(d) In the event and on each occasion that an Equity Issuance occurs, the
Borrower shall, substantially simultaneously with (and in any event not later
than the third Business Day next following) the occurrence of such Equity
Issuance, apply 50% of the Net Cash Proceeds therefrom to prepay outstanding
Term Loans in accordance with Section 2.13(g).
(e) No later than the earlier of (i) 90 days after the end of each fiscal
year of the Borrower, commencing with the fiscal year ending on December 31,
2000, and (ii) the date on which the financial statements with respect to such
period are delivered pursuant to Section 5.04(a), except as set forth on
Schedule 2.13(e), the Borrower shall prepay outstanding Term Loans in accordance
with Section 2.13(g) in an aggregate principal amount equal to 75% of Excess
Cash Flow for the fiscal year then ended; provided, however, that such
percentage shall be reduced to 50% for any year if the Leverage Ratio at the end
of such year shall have been less than 3.50 to 1.00.
(f) In the event that any Loan Party or any subsidiary of a Loan Party
shall receive Net Cash Proceeds from the issuance or other disposition of
Indebtedness for money
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borrowed of any Loan Party or any subsidiary of a Loan Party (other than
Indebtedness for money borrowed permitted pursuant to Section 6.01), the
Borrower shall, substantially simultaneously with (and in any event not later
than the third Business Day next following) the receipt of such Net Cash
Proceeds by such Loan Party or such subsidiary, apply an amount equal to 100% of
such Net Cash Proceeds to prepay outstanding Term Loans in accordance with
Section 2.13(g).
(g) Mandatory prepayments of outstanding Term Loans under this Agreement
shall be applied pro rata against the remaining scheduled installments of
principal due in respect of the Term Loans under Section 2.11.
(h) The Borrower shall deliver to the Administrative Agent, at the time of
each pre payment required under this Section 2.13, (i) a certificate signed by a
Financial Officer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) to the extent practicable,
at least three days prior written notice of such prepayment. Each notice of
prepayment shall specify the prepayment date, the Type of each Loan being
prepaid and the principal amount of each Loan (or portion thereof) to be
prepaid. All pre payments of Borrowings under this Section 2.13 shall be subject
to Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if any Change in Law
shall impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by any Lender or the Issuing Bank (except any such reserve requirement
which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or
the Issuing Bank or the London interbank market any other condition affecting
this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit
or participation therein, and the result of any of the foregoing shall be to
increase the cost to such Lender or the Issuing Bank of making or maintaining
any Eurodollar Loan or increase the cost to any Lender of issuing or maintaining
any Letter of Credit or purchasing or maintaining a participation therein or to
reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), in each
case, by an amount deemed by such Lender or the Issuing Bank to be material,
then the Borrower will pay to such Lender or the Issuing Bank, as the case may
be, upon demand in accordance with paragraph (c) below such additional amount or
amounts as will compensate such Lender or the Issuing Bank, as the case may be,
for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank shall have determined that any
Change in Law regarding capital adequacy has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or on
the capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made or participations in Letters of
Credit purchased by such Lender pursuant hereto or the Letters of Credit issued
by the Issuing Bank pursuant hereto to a level below that which such Lender or
the Issuing Bank or such Lender's or the Issuing Bank's holding company could
have achieved but for such Change In Law (taking into consideration such
Lender's or the Issuing Bank's policies and the policies of such Lender's or the
Issuing Bank's holding company with respect to capital adequacy) by an amount
deemed by such Lender or the Issuing Bank to be material, then from time to time
in accordance with paragraph (c) below the Borrower shall pay to such Lender or
the Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
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(c) A certificate of a Lender or the Issuing Bank setting forth the amount
or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as applicable, as specified in paragraph (a) or (b) above,
together with supporting documentation or computations in each case in
reasonable detail, shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender or the Issuing Bank
the amount shown as due on any such certificate delivered by it within 10 days
after its receipt of the same.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
that the Borrower shall not be under any obligation to compensate any Lender or
the Issuing Bank under paragraph (a) or (b) above with respect to increased
costs or reductions with respect to any period prior to the date that is 120
days prior to such request if such Lender or the Issuing Bank knew or could
reasonably have been expected to know of the circumstances giving rise to such
increased costs or reductions and of the fact that such circumstances would
result in a claim for increased compensation by reason of such increased costs
or reductions; provided further that the foregoing limitation shall not apply to
any increased costs or reductions arising out of the retroactive application of
any Change in Law within such 120-day period.
SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision
of this Agreement, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not
thereafter (for the duration of such unlawfulness) be made by such Lender
hereunder (or be continued for additional Interest Periods and ABR Loans
will not thereafter (for such duration) be converted into Eurodollar
Loans), whereupon any request for a Eurodollar Borrowing (or to convert an
ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar
Borrowing for an additional Interest Period) shall, as to such Lender
only, be deemed a request for an ABR Loan (or a request to continue an ABR
Loan as such or to convert a Eurodollar Loan into an ABR Loan, as the case
may be), unless such declaration shall be subsequently withdrawn (which
such Lender agrees to do as promptly as practicable after circumstances
allow); and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the effective
date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
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35
(b) For purposes of this Section 2.15, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period then applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense (other than any loss of margin over funding cost or
anticipated profit) that such Lender may sustain or incur as a consequence of
(a) any event, other than a default by such Lender in the performance of its
obligations hereunder, which results in (i) such Lender receiving or being
deemed to receive any amount on account of the principal of any Eurodollar Loan
prior to the end of the Interest Period in effect therefor, (ii) the conversion
of any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period
with respect to any Eurodollar Loan, in each case other than on the last day of
the Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made
by such Lender (including any Eurodollar Loan to be made pursuant to a
conversion or continuation under Section 2.10) not being made after notice of
such Loan shall have been given by the Borrower hereunder (any of the events
referred to in this clause (a) being called a "Breakage Event") or (b) any
default in the making of any payment or prepayment required to be made
hereunder. In the case of any Breakage Event, such loss shall include an amount
equal to the excess, as reasonably determined by such Lender, of (i) its cost of
obtaining funds for the Eurodollar Loan that is the subject of such Breakage
Event for the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or that would have been in effect) for such Loan over
(ii) the amount of interest likely to be realized by such Lender in redeploying
the funds released or not utilized by reason of such Breakage Event for such
period. A certificate of any Lender in reasonable detail with supporting
calculations setting forth any amount or amounts which such Lender is entitled
to receive pursuant to this Section 2.16 shall be delivered to the Borrower and
shall be conclusive absent manifest error.
SECTION 2.17. Pro Rata Treatment. Except as provided below in this Section
2.17 with respect to Swingline Loans and as required under Section 2.15, each
Borrowing, each payment or prepayment of principal of any Borrowing, each
payment of interest on the Loans, each payment of the Commitment Fees, each
reduction of the Term Loan Commitments or the Revolving Credit Commitments and
each conversion of any Borrowing to or continuation of any Borrowing as a
Borrowing of any Type shall be allocated pro rata among the Lenders in
accordance with their respective applicable Commitments (or, if such Commitments
shall have expired or been terminated, in accordance with the respective
principal amounts of their outstanding Loans). For purposes of determining the
available Revolving Credit Commitments of the Lenders at any time, each
outstanding Swingline Loan shall be deemed to have utilized the Revolving Credit
Commitments of the Lenders (including those Lenders which shall not have made
Swingline Loans) pro rata in accordance with such respective Revolving Credit
Commitments. Each Lender agrees that in computing such Lender's portion of any
Borrowing to be made hereunder, the Administrative Agent may, in its discretion,
round each Lender's percentage of such Borrowing to the next higher or lower
whole dollar amount.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or any other Loan Party, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in respect of any
Obligation as a result of which the unpaid portion of its Obligations shall be
proportionately
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less than the unpaid portion of the Obligations of any other Lender, it shall be
deemed simultaneously to have purchased from such other Lender at face value,
and shall promptly pay to such other Lender the purchase price for, a
participation in the Obligations of such other Lender, so that the aggregate
unpaid amount of the Obligations and participations in Obligations held by each
Lender shall be in the same proportion to the aggregate unpaid amount of all
Obligations then outstanding as the amount of its Obligations prior to such
exercise of banker's lien, setoff or counterclaim or other event was to the
amount of all Obligations outstanding prior to such exercise of banker's lien,
setoff or counterclaim or other event; provided, however, that if any such
purchase or purchases or adjustments shall be made pursuant to this Section 2.18
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in an Obligation deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to the Borrower in
the amount of such participation.
SECTION 2.19. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement or
any Fees or other amounts) hereunder and under any other Loan Document not later
than 1:00 p.m., New York City time, on the date when due in immediately
available dollars, without setoff, defense or counterclaim; provided, however,
that the Borrower shall make each payment of principal of or interest on
Swingline Loans not later than 12:00 (noon), New York City time . Each such
payment (other than (i) Issuing Bank Fees, which shall be paid directly to the
Issuing Bank, and (ii) principal of and interest on Swingline Loans, which shall
be paid directly to the Swingline Lender except as otherwise provided in Section
2.22(e)) shall be made to the Administrative Agent at its offices at Eleven
Madison Avenue, New York, New York.
(b) Except as otherwise expressly provided herein, whenever any payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder or under any other Loan Document shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by or on account of any
obligation of the Borrower or any Loan Party hereunder or under any other Loan
Document shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if the Borrower or any Loan
Party shall be required to deduct any Indemnified Taxes or Other Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) the Administrative Agent or such Lender (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower or such Loan Party shall make such
deductions and (iii) the Borrower or such Loan Party shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
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(c) The Borrower shall indemnify the Administrative Agent and each Lender,
within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any payment by or on account
of any obligation of the Borrower or any Loan Party hereunder or under any other
Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on
or attributable to amounts payable under this Section) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate as to
the amount of such payment or liability delivered to the Borrower by a Lender,
or by the Administrative Agent on its behalf or on behalf of a Lender, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by the Borrower or any other Loan Party to a Governmental Authority, the
Borrower shall deliver to the Administrative Agent the original or a certified
copy of a receipt issued by such Governmental Authority evidencing such payment,
a copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), on or prior to the Closing Date, or in the case of a
Lender that is an assignee or transferee of an interest under this Credit
Agreement pursuant to Section 9.04 (unless the Lender was already a Lender
hereunder immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Lender, such accurate, properly completed and
executed documentation prescribed by applicable law or reasonably requested by
the Borrower as will permit such payments to be made without withholding or at a
reduced rate. In addition, each Lender agrees that from time to time after the
Closing Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to the Borrower and the Agent new accurate, properly completed and
executed documentation prescribed by applicable law or as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Credit Agreement and any Revolving Loan, or it shall
immediately notify the Borrower and the Agent of its inability to deliver any
such documentation, in which case such Lender shall not be required to deliver
any such documentation, pursuant to this Section 2.20(e). Notwithstanding
anything to the contrary contained in Section 2.20 but subject to Section 9.04
and the immediately succeeding sentence, (x) the Borrower shall be entitled, to
the extent it is required to do so by law, to deduct or withhold income or
similar taxes imposed by the United States (or any political subdivision or
taxing authority thereof or therein) from interest, fees or other amounts
payable hereunder for the account of any Lender which is a Foreign Lender to the
extent that such Lender has not provided to the Borrower accurate, properly
completed and executed documentation that establishes a complete exemption from
such deduction or withholding and (y) the Borrower shall not be obligated
pursuant to Section 2.20 to make any additional payments to a Lender pursuant to
Section 2.20(b) or 2.20(c), as the case may be (the "Gross-Up Payments") if such
Lender has not provided to the Borrower the documentation required to be
provided to the Borrower pursuant to this Section 2.20(e). Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 2.20 and except as set forth in Section 9.04, the Borrower agrees
to pay additional amounts and to indemnify each Lender in the manner set
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38
forth in Sections 2.20(b) and 2.20(c) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any Taxes
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Closing Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of such Taxes.
(f) If the Borrower pays any additional amount under this Section
2.20 to a Lender and such Lender determines in its sole discretion that it has
actually received or realized in connection therewith any refund or any
reduction of, or credit against, its Tax Liabilities in or with respect to the
taxable year in which the additional amount is paid, such Lender shall pay to
the Borrower an amount that the Lender shall, in its sole discretion, determine
is equal to the net benefit, after tax, which was obtained by the Lender in such
year as a consequence of such refund, reduction or credit.
SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty
to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a
certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or
the Issuing Bank delivers a notice described in Section 2.15, (iii) the Borrower
is required to pay any additional amount to any Lender or the Issuing Bank or
any Governmental Authority on account of any Lender or the Issuing Bank pursuant
to Section 2.20 or (iv) any Lender refuses to consent to any amendment, waiver
or other modification of any Loan Document requested by the Borrower that
requires the consent of a greater percentage of the Lenders than the Required
Lenders and such amendment, waiver or other modification is consented to by the
Required Lenders, the Borrower may, at its sole expense and effort (including
with respect to the processing and recordation fee referred to in Section
9.04(b)), upon notice to such Lender or the Issuing Bank and the Administrative
Agent, require such Lender or the Issuing Bank to transfer and assign, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all of its interests, rights and obligations under this Agreement
to an assignee that shall assume such assigned obligations (which assignee may
be another Lender, if a Lender accepts such assignment); provided that (x) such
assignment shall not conflict with any law, rule or regulation or order of any
court or other Governmental Authority having jurisdiction, (y) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Revolving Credit Commitment is being assigned, of the Issuing Bank and the
Swingline Lender), which consent shall not unreasonably be withheld, and (z) the
Borrower or such assignee shall have paid to the affected Lender or the Issuing
Bank in immediately available funds an amount equal to the sum of the principal
of and interest accrued to the date of such payment on the outstanding Loans or
L/C Disbursements of such Lender or the Issuing Bank, respectively, plus all
Fees and other amounts accrued for the account of such Lender or the Issuing
Bank hereunder (including any amounts under Section 2.14 and Section 2.16);
provided further that, if prior to any such transfer and assignment the
circumstances or event that resulted in such Lender's or the Issuing Bank's
claim for compensation under Section 2.14 or notice under Section 2.15 or the
amounts paid pursuant to Section 2.20, as the case may be, cease to cause such
Lender or the Issuing Bank to suffer increased costs or reductions in amounts
received or receivable or reduction in return on capital, or cease to have the
consequences specified in Section 2.15, or cease to result in amounts being
payable under Section 2.20, as the case may be (including as a result of any
action taken by such Lender or the Issuing Bank pursuant to paragraph (b)
below), or if such Lender or the Issuing Bank shall waive its right to claim
further compensation under Section 2.14 in respect of such circumstances or
event or shall withdraw its notice under Section 2.15 or shall waive its right
to further payments under Section 2.20 in respect of such circumstances or
event, as the case may be, then such Lender or the Issuing Bank shall not
thereafter be required to make any such transfer and assignment hereunder.
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(b) If (i) any Lender or the Issuing Bank shall request compensation under
Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in
Section 2.15 or (iii) the Borrower is required to pay any additional amount to
any Lender or the Issuing Bank or any Governmental Authority on account of any
Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the
Issuing Bank shall use reasonable efforts (which shall not require such Lender
or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or
expense or otherwise take any action inconsistent with its internal policies or
legal or regulatory restrictions or suffer any disadvantage or burden deemed by
it to be significant) (x) to file any certificate or document reasonably
requested in writing by the Borrower or (y) to assign its rights and delegate
and transfer its obligations hereunder to another of its offices, branches or
affiliates, if such filing or assignment would reduce its claims for
compensation under Section 2.14 or enable it to withdraw its notice pursuant to
Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the
case may be, in the future. The Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender or the Issuing Bank in connection with
any such filing or assignment, delegation and transfer.
SECTION 2.22. Swingline Loans. (a) Swingline Commitment. Subject to the
terms and conditions and relying upon the representations and warranties herein
set forth, the Swingline Lender agrees to make loans to the Borrower at any time
and from time to time on and after the Closing Date and until the earlier of the
Revolving Credit Maturity Date and the termination of the Revolving Credit
Commitments in accordance with the terms hereof, in an aggregate principal
amount at any time outstanding that will not result in (i) the aggregate
principal amount of all Swingline Loans exceeding $10,000,000 in the aggregate,
(ii) the Revolving Credit Exposure of any Lender, after giving effect to any
Swingline Loan, exceeding such Lender's Revolving Credit Commitment or (iii) the
Aggregate Revolving Credit Exposure, after giving effect to any Swingline Loan,
exceeding the lesser of (x) the Total Revolving Credit Commitment and (y) the
Borrowing Base in effect at such time. Each Swingline Loan shall be in a
principal amount that is an integral multiple of $100,000. The Swingline
Commitment may be terminated or reduced from time to time as provided herein.
Within the foregoing limits, the Borrower may borrow, pay or prepay and reborrow
Swingline Loans hereunder, subject to the terms, conditions and limitations set
forth herein.
(b) Swingline Loans. The Borrower shall notify the Swingline Lender by
fax, or by telephone (confirmed by fax), with a copy of such notice to the
Administrative Agent, not later than 12:00 (noon), New York City time, on the
day of a proposed Swingline Loan. Such notice shall be delivered on a Business
Day, shall be irrevocable and shall refer to this Agreement and shall specify
the requested date (which shall be a Business Day) and amount of such Swingline
Loan. The Swingline Lender shall make each Swingline Loan available to the
Borrower by means of a credit to the general deposit account of the Borrower
with the Swingline Lender by 3:00 p.m. on the date such Swingline Loan is so
requested. Pursuant to Section 5.01(c) of the Security Agreement, the Swingline
Lender may apply the funds on deposit in the Concentration Account (as such term
is defined in the Security Agreement) on any Business Day to repay outstanding
Swingline Loans.
(c) Prepayment. The Borrower shall have the right at any time and from
time to time to prepay any Swingline Loan, in whole or in part, upon giving
written or fax notice (or telephone notice promptly confirmed by written, or fax
notice) to the Swingline Lender and to the Administrative Agent before 1:00
p.m., New York City time on the date of prepayment at the Swingline Lender's
address for notices specified on Schedule 2.01. All principal payments of
Swingline Loans shall be accompanied by accrued interest on the principal amount
being repaid to the date of payment.
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(d) Interest. Each Swingline Loan shall be an ABR Loan and, subject to the
provisions of Section 2.07, shall bear interest as provided in Section 2.06(a).
(e) Participations. The Swingline Lender may by written notice given to
the Administrative Agent not later than 11:00 a.m., New York City time, on any
Business Day require the Revolving Credit Lenders to acquire participations on
such Business Day in all or a portion of the Swingline Loans outstanding. Such
notice shall specify the aggregate amount of Swingline Loans in which the
Revolving Credit Lenders will participate. The Administrative Agent will,
promptly upon receipt of such notice, give notice to each Revolving Credit
Lender, specifying in such notice such Lender's Pro Rata Percentage of such
Swingline Loan or Loans. In furtherance of the foregoing, each Revolving Credit
Lender hereby absolutely and unconditionally agrees, upon receipt of notice as
provided above, to pay to the Administrative Agent, for the account of the
Swingline Lender, such Revolving Credit Lender's Pro Rata Percentage of such
Swingline Loan or Loans. Each Revolving Credit Lender acknowledges and agrees
that its obligation to acquire participations in Swingline Loans pursuant to
this paragraph is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a Default
or an Event of Default, and that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever. Each Revolving Credit
Lender shall comply with its obligation under this paragraph by wire transfer of
immediately available funds, in the same manner as provided in Section 2.02(c)
with respect to Loans made by such Lender (and Section 2.02(c) shall apply,
mutatis mutandis, to the payment obligations of the Lenders) and the
Administrative Agent shall promptly pay to the Swingline Lender the amounts so
received by it from the Lenders. The Administrative Agent shall notify the
Borrower of any participations in any Swingline Loan acquired pursuant to this
paragraph and thereafter payments in respect of such Swingline Loan shall be
made to the Administrative Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Borrower (or other party on behalf of
the Borrower) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Lenders that shall have made their payments pursuant to this paragraph and
to the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Borrower (or other party liable for obligations of the Borrower) of any
default in the payment thereof.
SECTION 2.23. Letters of Credit. (a) General. The Borrower may request the
issuance of a Letter of Credit for its own account, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time while the Revolving Credit Commitments remain in effect. This
Section shall not be construed to impose an obligation upon the Issuing Bank to
issue any Letter of Credit that is inconsistent with the terms and conditions of
this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
In order to request the issuance of a Letter of Credit (or to amend, renew or
extend an existing Letter of Credit), the Borrower shall hand deliver or fax to
the Issuing Bank and the Administrative Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice requesting
the issuance of a Letter of Credit, or identifying the Letter of Credit to be
amended, renewed or extended, the date of issuance, amendment, renewal or
extension, the date on which such Letter of Credit is to expire (which shall
comply with paragraph (c) below), the amount of such Letter of Credit, the name
and address
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41
of the beneficiary thereof and such other information as shall be necessary to
prepare such Letter of Credit. A Letter of Credit shall be issued, amended,
renewed or extended only if, and upon issuance, amendment, renewal or extension
of each Letter of Credit the Borrower shall be deemed to represent and warrant
that, after giving effect to such issuance, amendment, renewal or extension (i)
the L/C Exposure shall not exceed $10,000,000 and (ii) the Aggregate Revolving
Credit Exposure shall not exceed the lesser of (x) the Total Revolving Credit
Commitment and (y) the Borrowing Base in effect at such time.
(c) Expiration Date. Each Letter of Credit shall expire at the close of
business on the earlier of the date one year after the date of the issuance of
such Letter of Credit and the date that is five Business Days prior to the
Revolving Credit Maturity Date, unless such Letter of Credit expires by its
terms on an earlier date; provided that a Letter of Credit may provide for
automatic extension of any expiration date for additional periods of up to one
year, subject to a right on the part of the Issuing Bank to prevent any such
automatic extension from occurring by giving reasonable notice to the
beneficiary during a period satisfactory to the Administrative Agent.
(d) Participations. By the issuance of a Letter of Credit and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Revolving Credit Lender, and each such Lender hereby
acquires from the applicable Issuing Bank, a participation in such Letter of
Credit equal to such Lender's Pro Rata Percentage of the aggregate amount
available to be drawn under such Letter of Credit, effective upon the issuance
of such Letter of Credit. In consideration and in furtherance of the foregoing,
each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay
to the Administrative Agent, for the account of the Issuing Bank, such Lender's
Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not
reimbursed by the Borrower (or, if applicable, another party pursuant to its
obligations under any other Loan Document) forthwith on the date due as provided
in Section 2.02(f). Each Revolving Credit Lender acknowledges and agrees that
its obligation to acquire participations pursuant to this paragraph in respect
of Letters of Credit is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including the occurrence and continuance of a
Default or an Event of Default, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in
respect of a Letter of Credit, the Borrower shall pay to the Administrative
Agent an amount equal to such L/C Disbursement not later than two hours after
the Borrower shall have received notice from the Issuing Bank that payment of
such draft will be made, or, if the Borrower shall have received such notice
later than 10:00 a.m., New York City time, on any Business Day, not later than
10:00 a.m., New York City time, on the immediately following Business Day.
(f) Obligations Absolute. The Borrower's obligations to reimburse L/C
Disbursements as provided in paragraph (e) above shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, under any and all circumstances whatsoever,
and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit
or any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document;
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(iii) the existence of any claim, setoff, defense or other right
that the Borrower, any other party guaranteeing, or otherwise obligated
with, the Borrower, any Subsidiary or other Affiliate thereof or any other
person may at any time have against the beneficiary under any Letter of
Credit, the Issuing Bank, the Administrative Agent or any Lender or any
other person, whether in connection with this Agreement, any other Loan
Document or any other related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the
Issuing Bank, the Lenders, the Administrative Agent or any other person or
any other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrower hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or wilful misconduct of the Issuing Bank. However, the
foregoing shall not be construed to excuse the Issuing Bank from liability to
the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the
extent permitted by applicable law) suffered by the Borrower that are caused by
the Issuing Bank's gross negligence or wilful misconduct in determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof; it is understood that the Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary and, in
making any payment under any Letter of Credit (i) the Issuing Bank's exclusive
reliance on the documents presented to it under such Letter of Credit as to any
and all matters set forth therein, including reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary thereunder equals the amount of such draft and whether or not any
document presented pursuant to such Letter of Credit proves to be insufficient
in any respect, if such document on its face appears to be in order, and whether
or not any other statement or any other document presented pursuant to such
Letter of Credit proves to be forged or invalid or any statement therein proves
to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance
in any immaterial respect of the documents presented under such Letter of Credit
with the terms thereof shall, in each case, be deemed not to constitute wilful
misconduct or gross negligence of the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall as promptly as possible
give telephonic notification, confirmed by fax, to the Administrative Agent and
the Borrower of such demand for payment and whether the Issuing Bank has made or
will make an L/C Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve
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the Borrower of its obligation to reimburse the Issuing Bank and the Revolving
Credit Lenders with respect to any such L/C Disbursement. The Administrative
Agent shall promptly give each Revolving Credit Lender notice thereof.
(h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, then, unless the Borrower shall reimburse such
L/C Disbursement in full on such date, the unpaid amount thereof shall bear
interest for the account of the Issuing Bank, for each day from and including
the date of such L/C Disbursement, to but excluding the earlier of the date of
payment by the Borrower or the date on which interest shall commence to accrue
thereon as provided in Section 2.02(f), at the rate per annum that would apply
to such amount if such amount were an ABR Revolving Loan.
(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may
resign at any time by giving 30 days' prior written notice to the Administrative
Agent, the Lenders and the Borrower, and may be removed at any time by the
Borrower by notice to the Issuing Bank, the Administrative Agent and the
Lenders. Subject to the next succeeding paragraph, upon the acceptance of any
appointment as the Issuing Bank hereunder by a Lender that shall agree to serve
as successor Issuing Bank, such successor shall succeed to and become vested
with all the interests, rights and obligations of the retiring Issuing Bank and
the retiring Issuing Bank shall be discharged from its obligations to issue
additional Letters of Credit hereunder. At the time such removal or resignation
shall become effective, the Borrower shall pay all accrued and unpaid fees
pursuant to Section 2.05(c)(ii). The acceptance of any appointment as the
Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement
entered into by such successor, in a form satisfactory to the Borrower and the
Administrative Agent, and, from and after the effective date of such agreement,
(i) such successor Lender shall have all the rights and obligations of the
previous Issuing Bank under this Agreement and the other Loan Documents and (ii)
references herein and in the other Loan Documents to the term "Issuing Bank"
shall be deemed to refer to such successor or to any previous Issuing Bank, or
to such successor and all previous Issuing Banks, as the context shall require.
After the resignation or removal of the Issuing Bank hereunder, the retiring
Issuing Bank shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Bank under this Agreement and the other
Loan Documents with respect to Letters of Credit issued by it prior to such
resignation or removal, but shall not be required to issue additional Letters of
Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, the Borrower shall, on the Business Day it receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Credit Lenders holding participations in
outstanding Letters of Credit representing greater than 50% of the aggregate
undrawn amount of all outstanding Letters of Credit) thereof and of the amount
to be deposited, deposit in an account with the Collateral Agent, for the
benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C
Exposure as of such date. Such deposit shall be held by the Collateral Agent as
collateral for the payment and performance of the Obligations. The Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits in Permitted Investments, which investments shall be
made at the option and sole discretion of the Collateral Agent, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall (i) automatically be
applied by the Administrative Agent to reimburse the Issuing Bank for L/C
Disbursements for which it has not been reimbursed, (ii) be held for the
satisfaction of the reimbursement obligations of the Borrower for the L/C
Exposure at such time and (iii) if the maturity of the Loans has
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44
been accelerated (but subject to the consent of Revolving Credit Lenders holding
participations in outstanding Letters of Credit representing greater than 50% of
the aggregate undrawn amount of all outstanding Letters of Credit), be applied
to satisfy the Obligations. If the Borrower is required to provide an amount of
cash collateral hereunder as a result of the occurrence of an Event of Default,
such amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three Business Days after all Events of Default have been cured
or waived.
(k) Additional Issuing Banks. The Borrower may, at any time and from time
to time with the consent of the Administrative Agent (which consent shall not be
unreasonably withheld) and such Lender, designate one or more additional Lenders
to act as an issuing bank under the terms of this Agreement. Any Lender
designated as an issuing bank pursuant to this paragraph (k) shall be deemed (in
addition to being a Lender) to be the Issuing Bank with respect to Letters of
Credit issued or to be issued by such Lender, and all references herein and in
the other Loan Documents to the term "Issuing Bank" shall, with respect to such
Letters of Credit, be deemed to refer to such Lender in its capacity as Issuing
Bank.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent, the
Collateral Agent, the Issuing Bank and each of the Lenders that:
SECTION 3.01. Organization; Powers. The Borrower and each of the
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (b) has all requisite power
and authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required, except where the failure so to qualify could not reasonably be
expected to result in a Material Adverse Effect, and (d) has the power and
authority to execute, deliver and perform its obligations under each of the Loan
Documents and each other agreement or instrument contemplated hereby or thereby
to which it is or will be a party and, in the case of the Borrower, to borrow
hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
(a) each of the Borrower and Sub of the Merger Agreement and (b) each Loan Party
of each of the Loan Documents and the consummation of the transactions
contemplated by the Merger Agreement and the Loan Documents (including the
borrowings hereunder) (collectively, the "Transactions") (i) have been duly
authorized by all requisite corporate and, if required, stockholder action and
(ii) will not (x) violate (A) any material provision of law, statute, rule or
regulation, or of the certificate or articles of incorporation or other
constitutive documents or by-laws of Holdings, the Borrower or any Subsidiary,
(B) any order of any Governmental Authority or (C) any provision of any
indenture or any other material agreement or other instrument to which Holdings,
the Borrower or any Subsidiary is a party or by which any of them or any of
their property is or may be bound, (y) be in conflict with, result in a breach
of or constitute (alone or with notice or lapse of time or both) a default
under, or give rise to any right to accelerate or to require the prepayment,
repurchase or redemption of any obligation under any such indenture, agreement
or other instrument or (z) result in the crea tion or imposition of any Lien
upon or with respect to any property or assets now owned or
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45
hereafter acquired by Holdings, the Borrower or any Subsidiary (other than any
Lien created hereunder or under the Security Documents).
SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by Holdings and the Borrower and constitutes, and each other Loan
Document when executed and delivered by each Loan Party thereto will constitute,
a legal, valid and binding obligation of such Loan Party enforceable against
such Loan Party in accordance with its terms except as such enforceability may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization and
other similar laws relating to or affecting creditors' rights generally and
general equitable principles.
SECTION 3.04. Governmental Approvals; Contracts. (a) No action, consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except for
(i) the filing of Uniform Commercial Code financing statements, filings pursuant
to the Assignment of Claims Act and filings with the United States Patent and
Trademark Office and the United States Copyright Office, (ii) such as have been
made or obtained and are in full force and effect and (iii) such actions,
consents, approvals, registrations or filings, the failure of which to make or
obtain could not reasonably be expected to result in a Material Adverse Effect.
(b) No notice of suspension, debarment of termination for default has been
received by Holdings, the Borrower or any Subsidiary and no cure notice (other
than any immaterial cure notice under any General Services Administration
contract) has been received by Holdings, the Borrower or any Subsidiary in
connection with any Government Contract or other contract pursuant to which
Holdings, the Borrower or any Subsidiary is directly or indirectly acting as a
subcontractor under or in connection with a Government Contract. All Government
Contracts that as of the date hereof constitute Material Contracts are listed on
Schedule 3.04, and documentation necessary for compliance with the Assignment of
Claims Act has been executed and delivered by the Borrower or any Subsidiary, as
applicable, with respect to each Government Contract for which Assignment of
Claims Act perfection is currently being required by the Lenders (as noted on
Schedule 3.04).
SECTION 3.05. Financial Statements. (a) The Borrower has heretofore
furnished to the Lenders its consolidated balance sheets and statements of
income, stockholder's equity and cash flows (i) as of and for the fiscal year
ended December 31, 1998, audited by and accompanied by the opinion of KPMG LLP,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended March 31, 1999, certified by its chief
financial officer. Such financial statements present fairly in all material
respects the financial condition and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such
periods. Such balance sheets and the notes thereto disclose all material
liabilities, direct or contingent, of the Borrower and its consolidated
Subsidiaries as of the dates thereof. Such financial statements were prepared in
accordance with GAAP applied on a consistent basis.
(b) The Borrower has heretofore delivered to the Lenders its unaudited pro
forma consolidated balance sheet and statements of income, stockholder's equity
and cash flows as of December 31, 1998, prepared giving effect to the
Transactions as if they had occurred, with respect to such balance sheet, on
such date and, with respect to such other financial statements, on the first day
of the 12-month period ending on such date. Such pro forma financial statements
have been prepared in good faith by the Borrower, based on the assumptions used
to prepare the pro forma financial information contained in the Confidential
Information Memorandum (which assumptions at the time made were believed
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46
by the Borrower to be reasonable), were based on the best information available
to the Borrower as of the date of delivery thereof, accurately reflect all
adjustments required to be made to give effect to the Transactions and present
fairly in all material respects on a pro forma basis the estimated consolidated
financial position of the Borrower and its consolidated Subsidiaries as of such
date and for such period, assuming that the Transactions had actually occurred
at such date or at the beginning of such period, as the case may be.
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, results of operations, property, condition
(financial or otherwise) or prospects of the Borrower and the Subsidiaries,
taken as a whole, since December 31, 1998.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of
the Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets, except for minor
defects in title that do not interfere with its ability to conduct its business
as currently conducted or to utilize such properties and assets for their
intended purposes. All such material properties and assets are free and clear of
Liens, other than Liens expressly permitted by Section 6.02.
(b) Each of the Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party and all such leases
are in full force and effect. Each of the Borrower and the Subsidiaries enjoys
peaceful and undisturbed possession under all such material leases.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing
Date a list of all Subsidiaries and the percentage ownership interest of
Holdings or the Borrower therein. The shares of capital stock or other ownership
interests so indicated on Schedule 3.08 are fully paid and non-assessable and
are owned by Holdings or the Borrower, directly or indirectly, free and clear of
all Liens (other than Liens created pursuant to the Loan Documents).
SECTION 3.09. Litigation; Compliance with Laws. Except as set forth on
Schedule 3.09, there are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to the
knowledge of Holdings or the Borrower, threatened against or affecting Holdings
or the Borrower or any Subsidiary or any business, property or rights of any
such person (i) that involve any Loan Document or the Transactions or (ii) as to
which there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect.
SECTION 3.10. Agreements. None of Holdings, the Borrower or any of the
Subsidi aries is in default in any manner under any provision of any indenture
or other agreement or instrument evidencing Indebtedness, or any Material
Contract, where such default could reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of Holdings, the
Borrower or any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including Regulation T, U
or X.
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47
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
None of Holdings, the Borrower or any Subsidiary is (a) an "investment company"
as defined in, or subject to regulation under, the Investment Company Act of
1940 or (b) a "holding company" as defined in, or subject to regulation under,
the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the
Loans and will request the issuance of Letters of Credit only for the purposes
specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of Holdings, the Borrower and the
Subsidiaries has filed or caused to be filed all Federal, state, local and
foreign tax returns or materials required to have been filed by it and has paid
or caused to be paid all material taxes due and payable by it and all material
assessments received by it, except taxes that are being contested in good faith
by appropriate proceedings and for which Holdings, the Borrower or such
Subsidiary, as applicable, shall have set aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. None of (a) the Confidential
Information Memorandum or (b) any other information, report, financial
statement, exhibit or schedule furnished by or on behalf of Holdings or the
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of any Loan Document or included therein or delivered pursuant
thereto contained, contains or will contain any material mis statement of fact
or omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading; provided that to the extent any such
information, report, financial statement, exhibit or schedule was based upon or
constitutes a forecast or projection, each of Holdings and the Borrower
represents only that it acted in good faith and utilized reasonable assumptions
and due care in the preparation of such information, report, financial
statement, exhibit or schedule.
SECTION 3.16. Employee Benefit Plans. (a) Each of the Borrower and its
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Borrower or
any of its ERISA Affiliates. The present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable thereto, exceed by more than $3,000,000
the fair market value of the assets of such Plan, and the present value of all
benefit liabilities of all underfunded Plans (based on those assumptions used to
fund each such Plan) did not, as of the last annual valuation dates applicable
thereto, exceed by more than $3,000,000 the fair market value of the assets of
all such underfunded Plans.
(b) Each Foreign Pension Plan is in compliance in all material respects
with all requirements of law applicable thereto and the respective requirements
of the governing documents for such plan except to the extent such
non-compliance could not reasonably be expected to result in a Material Adverse
Effect. With respect to each Foreign Pension Plan, none of the Borrower, its
Affiliates or any of its directors, officers, employees or agents has engaged in
a transaction that subjects the Borrower or any of its Subsidiaries, directly or
indirectly, to a material tax or civil penalty. With respect to each Foreign
Pension Plan, reserves have been established in the financial statements
furnished to the Lenders in respect of any unfunded liabilities in accordance
with applicable law and prudent business practice
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48
or, where required, in accordance with ordinary accounting practices in the
jurisdiction in which such Foreign Pension Plan is maintained. The aggregate
unfunded liabilities, with respect to such Foreign Pension Plans could not
reasonably be expected to result in a Material Adverse Effect. There are no
actions, suits or claims (other than routine claims for benefits) pending or
threatened against the Borrower or any of its Affiliates with respect to any
Foreign Pension Plan that could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect.
SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17:
(a) The properties owned or operated by Holdings, the Borrower and the
Subsidiaries (the "Properties") do not contain any Hazardous Materials in
amounts or concentrations which (i) constitute, or constituted a violation of,
(ii) require Remedial Action under, or (iii) could give rise to liability under,
Environmental Laws, which violations, Remedial Actions and liabilities, in the
aggregate, could reasonably be expected to result in a Material Adverse Effect;
(b) The Properties and all operations of the Borrower and the Subsidiaries
are in compliance, and in the last six years have been in compliance, with all
Environmental Laws and all necessary Environmental Permits have been obtained
and are in effect, except to the extent that such non-compliance or failure to
obtain any necessary permits, in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect;
(c) There have been no Releases or threatened Releases at, from, under or
proximate to the Properties or otherwise in connection with the operations of
the Borrower or the Subsidiaries, which Releases or threatened Releases, in the
aggregate, could reasonably be expected to result in a Material Adverse Effect;
(d) None of Holdings, the Borrower or any of the Subsidiaries has received
any notice of an Environmental Claim in connection with the Properties or the
operations of the Borrower or the Subsidiaries or with regard to any person
whose liabilities for environmental matters Holdings, the Borrower or the
Subsidiaries has retained or assumed, in whole or in part, contractually, by
operation of law or otherwise, which, in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, nor do Holdings, the Borrower
or the Subsidiaries have reason to believe that any such notice will be received
or is being threatened; and
(e) Hazardous Materials have not been transported from the Properties, nor
have Hazardous Materials been generated, treated, stored or disposed of at, on
or under any of the Properties in a manner that could give rise to liability
under any Environmental Law, nor have the Borrower or the Subsidiaries retained
or assumed any liability, contractually, by operation of law or otherwise, with
respect to the generation, treatment, storage or disposal of Hazardous
Materials, which transportation, generation, treatment, storage or disposal, or
retained or assumed liabilities, in the aggregate, could reasonably be expected
to result in a Material Adverse Effect.
SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct description of all insurance maintained by the Borrower or by the
Borrower for its Subsidiaries as of the date hereof and the Closing Date. As of
each such date, such insurance is in full force and effect and all premiums have
been duly paid. The Borrower and its Subsidiaries have insurance in such amounts
and covering such risks and liabilities as are in accordance with normal
industry practice.
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49
SECTION 3.19. Security Documents. (a) The Pledge Agreement is effective to
create in favor of the Collateral Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable security interest in the Collateral (as
defined in the Pledge Agreement) and, when the Collateral is delivered to the
Collateral Agent, the Pledge Agreement shall constitute a fully perfected first
priority Lien on, and security interest in, all right, title and interest of the
pledgors thereunder in such Collateral, in each case prior and superior in right
to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
(other than the Intellectual Property, as defined in the Security Agreement), in
each case prior and superior in right to any other person, other than with
respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent and
Trademark Office and the United States Copyright Office, the Security Agreement
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the grantors thereunder in the Intellectual Property (as
defined in the Security Agreement), in each case prior and superior in right to
any other person (it being understood that subsequent recordings in the United
States Patent and Trademark Office and the United States Copyright Office may be
necessary to perfect a lien on registered trademarks, trademark applications and
copyrights acquired by the grantors after the date hereof).
SECTION 3.20. Location of Real Property. Schedule 3.20 lists completely
and correctly as of the Closing Date (after giving effect to the Merger) all
real property owned by the Borrower and the Subsidiaries and the addresses
thereof. The Borrower and the Subsidiaries own in fee all the real property set
forth on Schedule 3.20.
SECTION 3.21. Labor Matters. As of the date hereof and the Closing Date,
there are no strikes, lockouts or slowdowns against Holdings, the Borrower or
any Subsidiary pending or, to the knowledge of Holdings or the Borrower,
threatened. The hours worked by and payments made to employees of Holdings, the
Borrower and the Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters. All payments due from Holdings, the Borrower or any
Subsidiary, or for which any claim may be made against Holdings, the Borrower or
any Subsidiary, on account of wages and employee health and welfare insurance
and other benefits, have been paid or accrued as a liability on the books of
Holdings, the Borrower or such Subsidiary. The consummation of the Transactions
will not give rise to any right of termination or right of renegotiation on the
part of any union under any collective bargaining agreement to which Holdings,
the Borrower or any Subsidiary is bound.
SECTION 3.22. Solvency. Immediately after the consummation of the
Transactions to occur on the Closing Date and immediately following the making
of each Loan and after giving effect to the application of the proceeds of each
Loan, (a) the fair value of the assets of each Loan Party, at a fair valuation,
will exceed its debts and liabilities, subordinated, contingent or otherwise;
(b) the present fair saleable value of the property of each Loan Party will be
greater than the amount that will be required to pay the probable liability of
its debts and other liabilities, subordinated, contingent or otherwise, as such
debts and other liabilities
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50
become absolute and matured; (c) each Loan Party will be able to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) each Loan Party will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted
following the Closing Date.
SECTION 3.23. Year 2000. No further programming or reprogramming is
required to permit the proper functioning, in and following the year 2000, of
(a) the Borrower's and its Subsidiaries' computer systems and (b) equipment
containing embedded microchips (including systems and equipment supplied by
others or, to the Borrower's knowledge, with which the Borrower's or its
Subsidiaries' systems interface). The cost to the Borrower and its Subsidiaries
of the reasonably foreseeable consequences of the year 2000 to the Borrower and
its Subsidiaries (including reprogramming errors and the failure of others'
systems or equipment) will not result in a Material Adverse Effect. The computer
and management information systems of the Borrower and its Subsidiaries are and,
with ordinary course upgrading and maintenance, will continue for the term of
this Agreement to be, sufficient to permit the Borrower and its Subsidiaries to
conduct their business without Material Adverse Effect.
ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit hereunder are subject to the satisfaction of the
following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing, including
each Borrowing of a Swingline Loan but excluding the conversion of a Eurodollar
Borrowing to an ABR Borrowing or vice versa or the continuation or conversion of
the Interest Period of a Eurodollar Borrowing into another permitted Interest
Period, and on the date of each issuance, amendment, extension or renewal of a
Letter of Credit (each such event being called a "Credit Event"):
(a) The Administrative Agent shall have received a notice of such
Borrowing as required by Section 2.03 (or such notice shall have been deemed
given in accordance with Section 2.03) or, in the case of the issuance,
amendment, extension or renewal of a Letter of Credit, the Issuing Bank and the
Administrative Agent shall have received a notice requesting the issuance,
amendment, extension or renewal of such Letter of Credit as required by Section
2.23(b) or, in the case of the Borrowing of a Swingline Loan, the Swingline
Lender and the Administrative Agent shall have received a notice requesting such
Swingline Loan as required by Section 2.22(b).
(b) The representations and warranties set forth in Article III hereof and
in each other Loan Document shall be true and correct in all material respects
on and as of the date of such Credit Event with the same effect as though made
on and as of such date, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) At the time of and immediately after such Credit Event, no Event of
Default or Default shall have occurred and be continuing.
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(d) If, after giving effect to such Borrowing or the issuance of any
Letter of Credit, the Aggregate Revolving Credit Exposure would exceed
$110,000,000, the Administrative Agent shall have received a certificate of a
Financial Officer in form and substance satisfactory to the Administrative Agent
demonstrating that either (i) on the date of such Borrowing or upon the issuance
of any Letter of Credit, as the case may be, the Consolidated Coverage Ratio
exceeds 2.00 to 1.00 (or 2.25 to 1.00 after May 15, 2001) and the Consolidated
Leverage Ratio is less than 5.75 to 1.00 (or 5.50 to 1.00 after December 31,
2000), in each case, as calculated in accordance with Section 4.03(a) of the
Senior Subordinated Note Indenture or (ii) the Aggregate Revolving Credit
Exposure would not exceed 90% of accounts receivable of the Borrower and its
Subsidiaries as calculated in accordance with Section 4.03(b)(1) of the Senior
Subordinated Note Indenture.
Each Credit Event shall be deemed to constitute a representation and
warranty by the Borrower and Holdings on the date of such Credit Event as to the
matters specified in paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Credit Event. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of itself, the
Lenders and the Issuing Bank, a favorable written opinion of (i) Paul, Weiss,
Rifkind, Wharton & Garrison, counsel for Holdings and the Borrower,
substantially to the effect set forth in Exhibit H-1, (ii) Curtis L. Schehr,
Esq., General Counsel of the Borrower, substantially to the effect set forth in
Exhibit H-2, and (iii) each local counsel listed on Schedule 4.02(a),
substantially to the effect set forth in Exhibit H-3, in each case (A) dated the
Closing Date, (B) addressed to the Issuing Bank, the Administrative Agent and
the Lenders, and (C) covering such other matters relating to the Loan Documents
and the Transactions as the Administrative Agent shall reasonably request, and
Holdings and the Borrower hereby request such counsel to deliver such opinions.
(b) All legal matters incident to this Agreement, the Borrowings and
extensions of credit hereunder and the other Loan Documents shall be reasonably
satisfactory to the Lenders, to the Issuing Bank and to the Administrative
Agent.
(c) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments thereto, of
each Loan Party, certified as of a recent date by the Secretary of State of the
state of its organization, and a certificate as to the good standing of each
Loan Party as of a recent date, from such Secretary of State; (ii) a certificate
of the Secretary or Assistant Secretary of each Loan Party dated the Closing
Date and certifying (A) that attached thereto is a true and complete copy of the
by-laws of such Loan Party as in effect on the Closing Date and at all times
since a date prior to the date of the resolutions described in clause (B) below,
(B) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of such Loan Party authorizing the execution,
delivery and performance of the Loan Documents to which such person is a party
and, in the case of the Borrower, the borrowings hereunder, and that such
resolutions have not been modified, rescinded or amended and are in full force
and effect, (C) that the certificate or articles of incorporation of such Loan
Party have not been amended since the date of the last amendment thereto shown
on the certificate of good standing furnished pursuant to clause (i) above, and
(D) as to the incumbency and specimen signature of each officer executing any
Loan Document or any other document delivered in connection herewith on behalf
of such Loan Party; (iii) a certificate of another officer as to the incumbency
and specimen signature of the Secretary or Assistant Secretary executing the
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52
certificate pursuant to clause (ii) above; and (iv) such other documents as the
Lenders, the Issuing Bank or the Administrative Agent may reasonably request.
(d) The Administrative Agent shall have received a certificate, dated the
Closing Date and signed by a Financial Officer of the Borrower, confirming
compliance with the conditions precedent set forth in paragraphs (b) and (c) of
Section 4.01.
(e) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Closing Date, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrower hereunder or under any other Loan
Document.
(f) The Pledge Agreement shall have been duly executed by the parties
thereto and delivered to the Collateral Agent and shall be in full force and
effect, and (i) all the outstanding capital stock of the Borrower then owned by
Holdings, (ii) all the outstanding capital stock of each Domestic Subsidiary
then owned by the Borrower and each other Domestic Subsidiary and (iii) 65% of
the voting capital stock and 100% of the nonvoting capital stock (if any) of
each Foreign Subsidiary listed on Schedule 4.02(f), shall have been duly and
validly pledged thereunder to the Collateral Agent for the ratable benefit of
the Secured Parties and certificates representing such shares, accompanied by
instruments of transfer and stock powers endorsed in blank, shall be in the
actual possession of the Collateral Agent.
(g) The Security Agreement shall have been duly executed by the Loan
Parties party thereto and shall have been delivered to the Collateral Agent and
shall be in full force and effect on such date and each document (including each
Uniform Commercial Code financing statement and each Assignment of Claims Act
notice) required by law or reasonably requested by the Agents to be filed,
registered or recorded in order to create in favor of the Collateral Agent for
the benefit of the Secured Parties a valid, legal and perfected first-priority
security interest in and lien on the Collateral (subject to any Lien expressly
permitted by Section 6.02) described in such agreement shall have been delivered
to the Collateral Agent.
(h) The Agents shall have received the results of a search of the Uniform
Commercial Code filings (or equivalent filings) made with respect to the Loan
Parties in the states (or other jurisdictions) in which the chief executive
office of each such person is located, any offices of such persons in which
records have been kept relating to Accounts and the other jurisdictions in which
Uniform Commercial Code filings (or equivalent filings) are to be made pursuant
to the preceding paragraph, together with copies of the financing statements (or
similar documents) disclosed by such search, and accompanied by evidence
satisfactory to the Collateral Agent that the Liens indicated in any such
financing statement (or similar document) would be permitted under Section 6.02
or have been or will be contemporaneously released or terminated. The Agents
shall have also received all information required for the proper assignment
under the Assignment of Claims Act of all Government Contracts required to be
assigned as indicated on Schedule 3.04.
(i) The Collateral Agent shall have received a Perfection Certificate with
respect to the Loan Parties dated the Closing Date and duly executed by a
Responsible Officer of the Borrower.
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53
(j) Each of the Subsidiary Guarantee Agreement and the Indemnity,
Subrogation and Contribution Agreement shall have been duly executed by the
parties thereto, shall have been delivered to the Collateral Agent and shall be
in full force and effect.
(k) The Agents shall have received a Borrowing Base/Non-Default
Certificate dated the Closing Date, relating to the period ending on the last
day of the preceding month and executed by a Financial Officer of the Borrower.
(l) The Agents shall have received a copy of, or a certificate as to
coverage under, the insurance policies required by Section 5.02 and the
applicable provisions of the Security Documents, each of which shall be endorsed
or otherwise amended to include a "standard" or "New York" lender's loss payable
endorsement and to name the Collateral Agent as additional insured, in form and
substance satisfactory to the Agents.
(m) The Lenders shall have received the Borrower's unaudited consolidated
balance sheet and related statements of income, stockholders' equity and cash
flows as of and for the quarter ended March 31, 1999, and A&T's audited
consolidated balance sheet and related statements of income, stockholders'
equity and cash flows as of and for the year ended April 3, 1999.
(n) The Lenders shall be reasonably satisfied as to the amount and nature
of any environmental and employee health and safety exposures to which the
Borrower and the Subsidiaries may be subject and the plans of the Borrower with
respect thereto.
(o) The Merger shall have been consummated or shall be consummated
simultaneously with the initial Credit Event on the Closing Date, in each case
in all material respects in accordance with the terms of the relevant
documentation therefor, including the Merger Agreement and the related schedules
and attachments thereto in the form in which they were initially executed (and
without the waiver or amendment of any material terms or conditions of the
Merger Agreement, except as shall be approved by the Administrative Agent (which
approval shall not be unreasonably withheld)).
(p) There shall be no litigation or administrative proceedings,
governmental investigations or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, will or are reasonably likely to
have a Material Adverse Effect.
(q) The Lenders shall be reasonably satisfied with all material legal, tax
and accounting matters relating to the Transactions and the other transactions
contemplated hereby, including the ability of Subsidiaries to transfer funds to
the Borrower and the withholding tax consequences thereof.
(r) All requisite Governmental Authorities and third parties shall have
approved or consented to the Transactions and the other transactions
contemplated hereby to the extent required, in each case to the extent failure
to obtain such consent or approval will or is reasonably likely to have a
Material Adverse Effect and there shall be no governmental or judicial action,
actual or threatened, that has or would have, singly or in the aggregate, a
reasonable likelihood of restraining, preventing or imposing burdensome
conditions on the Transactions or the other transactions contemplated hereby.
(s) The Lenders shall have received a certificate substantially in the
form of Exhibit L from the chief financial officer of the Borrower to the effect
that, after giving effect to the Transactions, the Borrower and the Subsidiaries
taken as a whole will not (i) be insolvent,
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54
(ii) be rendered insolvent by the Indebtedness incurred in connection therewith,
(iii) be left with unreasonably small capital with which to engage in its
business or (iv) have incurred debts beyond its ability to pay such debts as
they mature.
(t) All principal, premium, if any, interest, fees and other amounts due
and owing under the Existing Credit Agreements shall have been paid in full, the
commitments thereunder terminated and all guarantees and security in support
thereof released, and the Agent shall have received reasonably satisfactory
evidence thereof, and after giving effect to the Transactions and the other
transactions contemplated hereby, the Borrower and its subsidiaries shall have
outstanding no Indebtedness or preferred stock other than (i) the Loans and
Letters of Credit hereunder and (ii) the Indebtedness listed on Schedule 6.01.
(u) After giving pro forma effect to the Transactions, the Leverage Ratio
shall not exceed 5.50 to 1.00.
(v) The Equity Contribution shall have been made, and the proceeds of the
Senior Subordinated Notes shall have been released from escrow and, together
with the Equity Contribution, shall have been used as described in the preamble
to this Agreement.
(w) All the representations and warranties contained in the Merger
Agreement shall be true and correct in all material respects without giving
effect to any waiver thereof (except for waivers granted with the Administrative
Agent's approval, such approval not to be unreasonably withheld).
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the Commitments have been terminated
and the principal of and interest on each Loan, all Fees and all other expenses
or amounts payable under any Loan Document shall have been paid in full and all
Letters of Credit have been canceled or have expired and all amounts drawn
thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Borrower will, and will cause each of the
Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except as otherwise expressly permitted under Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated; comply
in all material respects with all applicable laws, rules, regulations, decrees
and orders of any Governmental Authority, whether now in effect or hereafter
enacted; and at all times maintain and preserve all property material to the
conduct of such business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and
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55
replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 5.02. Insurance. (a) Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers; maintain such
other insurance, to such extent and against such risks, including fire and other
risks insured against by extended coverage, as is customary with companies in
the same or similar businesses operating in the same or similar locations,
including public liability insurance against claims for personal injury or death
or property damage occurring upon, in, about or in connection with the use of
any properties owned, occupied or controlled by it; and maintain such other
insurance as may be required by law.
(b) Cause all such policies covering any Collateral to be endorsed or
otherwise amended to include a "standard" or "New York" lender's loss payable
endorsement, in form and substance reasonably satisfactory to the Administrative
Agent and the Collateral Agent, which endorsement shall provide that, from and
after the Closing Date, if the insurance carrier shall have received written
notice from the Administrative Agent or the Collateral Agent of the occurrence
of an Event of Default, the insurance carrier shall pay all proceeds otherwise
payable to the Borrower or the Loan Parties under such policies directly to the
Collateral Agent; cause all such policies to provide that neither the Borrower,
the Administrative Agent, the Collateral Agent nor any other party shall be a
coinsurer thereunder and to contain a "Replacement Cost Endorsement", without
any deduction for depreciation, and such other provisions as the Administrative
Agent or the Collateral Agent may reasonably require from time to time to
protect their interests; deliver original or certified copies of all such
policies to the Collateral Agent; cause each such policy to provide that it
shall not be canceled, modified or not renewed (i) by reason of nonpayment of
premium upon not less than 10 days' prior written notice thereof by the insurer
to the Administrative Agent and the Collateral Agent (giving the Administrative
Agent and the Collateral Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason upon not less than 30 days' prior written
notice thereof by the insurer to the Administrative Agent and the Collateral
Agent; deliver to the Administrative Agent and the Collateral Agent, prior to
the cancelation, modification or nonrenewal of any such policy of insurance, a
copy of a renewal or replacement policy (or other evidence of renewal of a
policy previously delivered to the Administrative Agent and the Collateral
Agent) together with evidence satisfactory to the Administrative Agent and the
Collateral Agent of payment of the premium therefor.
(c) Notify the Administrative Agent and the Collateral Agent immediately
whenever any separate insurance concurrent in form or contributing in the event
of loss with that required to be maintained under this Section 5.02 is taken out
by the Borrower; and promptly deliver to the Administrative Agent and the
Collateral Agent a duplicate original copy of such policy or policies.
SECTION 5.03. Obligations and Taxes. Pay its material Indebtedness and
other obligations promptly and in accordance with their terms and pay and
discharge promptly when due all material taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or in respect of
its property, before the same shall become delinquent or in default, as well as
all lawful claims for labor, materials and supplies or otherwise that, if
unpaid, might give rise to a Lien upon such properties or any part thereof;
provided, however, that (a) such payment and discharge shall not be required
with respect to any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and the Borrower shall have set
<PAGE>
56
aside on its books adequate reserves with respect thereto in accordance with
GAAP and such contest operates to suspend collection of the contested
obligation, tax, assessment or charge and enforcement of a Lien and (b) failure
to pay any Indebtedness shall not be a breach of this covenant unless such
failure would give rise to an Event of Default under paragraph (f) of Article
VII.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent, the Collateral Agent and each
Lender:
(a) within 90 days after the end of each fiscal year, its
consolidated balance sheet and related statements of income, stockholders'
equity and cash flows showing the financial condition of the Borrower and
its consolidated Subsidiaries as of the close of such fiscal year and the
results of its operations and the operations of such Subsidiaries during
such year, all audited by KPMG LLP or other independent public accountants
of recognized national standing and accompanied by an opinion of such
accountants (which shall not be qualified in any material respect) to the
effect that such consolidated financial statements fairly present the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated balance sheet and related
statements of income, stockholders' equity and cash flows showing the
financial condition of the Borrower and its consolidated Subsidiaries as
of the close of such fiscal quarter and the results of its operations and
the operations of such Subsidiaries during such fiscal quarter and the
then elapsed portion of the fiscal year, all certified by one of its
Financial Officers as fairly presenting in all material respects the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP,
subject to normal year-end audit adjustments;
(c) within 30 days after the end of each of the first 11 fiscal
months of each fiscal year, its consolidated balance sheet and related
statements of income, stockholder's equity and cash flows showing the
financial condition of the Borrower and its consolidated Subsidiaries as
of the close of such fiscal month and the results of its operations and
the operations of such Subsidiaries during such fiscal month and the then
elapsed portion of such fiscal year, all certified by one of its Financial
Officers as fairly presenting in all material respects the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP, subject to
normal year-end audit adjustments;
(d) at the time of delivery of the financial statements referred to
in paragraph (a), (b) or (c) above, the unaudited consolidating balance
sheet and related statements of income and cash flows, showing the
financial position of the Borrower and each of its Subsidiaries as of the
close of, and the results of operations of the Borrower and each of its
Subsidiaries during, the relevant period referred to in paragraph (a), (b)
or (c) above, as the case may be, all certified by one of its Financial
Officers as fairly presenting in all material respects the financial
condition and results of operations of the Borrower and each of its
Subsidiaries in accordance with GAAP (except for consolidation), subject
in the case of monthly and quarterly reports, to normal year-end audit
adjustments;
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57
(e) within 45 days after the end of each fiscal year, consolidated
and consolidating projections of revenues, expenditures and results of
operations and cash positions of the Borrower and each Subsidiary as of
the end of each month in the forthcoming year, together with a statement
of assumptions and estimates upon which such projections are based, all in
detail reasonably satisfactory to the Administrative Agent;
(f) within 90 days after the end of each fiscal year, projections of
backlog and rolloff of the Borrower and each Subsidiary as of the end of
each month in the forthcoming year, together with a statement of
assumptions and estimates upon which such projections are based, all in
detail reasonably satisfactory to the Administrative Agent;
(g) concurrently with any delivery of financial statements under
paragraph (a) or (b) above, a certificate in the form of Exhibit I (a
"Compliance Certificate") of (i) the accounting firm (in the case of
paragraph (a)) or Financial Officer (in the case of paragraph (b)) opining
on or certifying such statements (which certificate, when furnished by an
accounting firm, may be limited to accounting matters and disclaim
responsibility for legal interpretations) (A) certifying that no Event of
Default or Default has occurred or, if such an Event of Default or Default
has occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto and (B) setting
forth computations in detail reasonably satisfactory to the Agents
demonstrating compliance with the covenants contained in Sections 6.08 (in
the case of paragraph (a)), 6.09, 6.10, 6.11, 6.12 and 6.13, and (ii) the
Financial Officer in the case of paragraph (a) or (b) setting forth
compliance with the covenants contained in Sections 6.01(c), 6.01(f),
6.01(g), 6.01(h), 6.01(i), 6.01(j), 6.01(k), 6.04(d), 6.04(h), 6.04(k),
6.04(p), 6.05(b), 6.06 and 6.07(d), and, in the case of a certificate
delivered with the financial statements required by paragraph (a) above,
setting forth the Borrower's calculation of Excess Cash Flow;
(h) within 37 days after the end of each calendar month a
certificate in the form of Exhibit J (a "Borrowing Base/Non-Default
Certificate") showing the Borrowing Base as of the close of business on
the last day of such calendar month, each such Certificate to be certified
as complete and correct on behalf of the Borrower by a Financial Officer
of the Borrower;
(i) promptly upon their becoming available, and in any event within
30 days following the end of each calendar month, (i) a monthly report, in
form and detail reasonably satisfactory to the Agents, setting forth the
current billed accounts receivable agings reports, as well as a detailed
subcontractor invoice report, of the Borrower and each Subsidiary
Guarantor as of the end of the preceding calendar month, and (ii) a
contract status backlog report of the Borrower and each Subsidiary
Guarantor prepared as of the last day of the calendar month most recently
ended;
(j) commencing on December 31, 1999, for the fiscal quarter then
ended, and thereafter within 6 weeks following the end of each calendar
quarter, a quarterly report, in form and detail reasonably satisfactory to
the Agents, setting forth unbilled active accounts relating to Material
Contracts of the Borrower as of the end of such calendar quarter;
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58
(k) promptly after the same become publicly available, copies of all
periodic and other reports, final proxy statements and, upon notice of
filing to the Administrative Agent and upon the request of the
Administrative Agent, other materials filed by the Borrower or any
Subsidiary with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed to
its shareholders, as the case may be, and all press releases;
(l) promptly after the receipt thereof by Holdings, the Borrower or
any of their respective Subsidiaries, a copy of any "management letter" in
final form (or if such final letter has not been delivered to Holdings,
the Borrower or any of their respective Subsidiaries by the date that is 8
months after the Borrower's fiscal year end, the then current draft of any
"management letter") received by any such person from its certified public
accountants and the management's responses thereto;
(m) each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to clause
(a) above, the Borrower shall deliver to the Agents a certificate of a
Financial Officer of the Borrower (i) setting forth the information
required pursuant to Section 2 of the Perfection Certificate or confirming
that there has been no change in such information since the date of the
Perfection Certificate delivered on the Closing Date or the date of the
most recent certificate delivered pursuant to this Section and (ii)
certifying that all Uniform Commercial Code financing statements
(including fixture filings, as applicable) or other appropriate filings,
recordings or registrations, including all refilings, rerecordings and
reregistrations, containing a description of the Collateral have been
filed of record in each governmental, municipal or other appropriate
office in each jurisdiction identified pursuant to clause (i) above to the
extent necessary to protect and perfect the security interests under the
Security Documents for a period of not less than 18 months after the date
of such certificate (except as noted therein with respect to any
continuation statements to be filed within such period);
(n) within 45 days after the end of the first and third fiscal
quarters of the Borrower, a certificate of a Financial Officer of the
Borrower listing all new Government Contracts since the date of the last
Perfection Certificate which constitute Material Contracts and which are
required by this Agreement to be assigned to the Collateral Agent, on
behalf of the Lenders, in accordance with the Assignment of Claims Act;
and
(o) promptly, from time to time, subject to any restrictions
requiring confidentiality or secrecy, such other information regarding the
operations, business affairs and financial condition of Holdings, the
Borrower or any Subsidiary, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably
request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative
Agent, the Issuing Bank and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) taken or proposed to be
taken with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in
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59
equity or by or before any Governmental Authority, against the Borrower or
any Affiliate thereof that could reasonably be expected to result in a
Material Adverse Effect; and
(c) any development that has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. (a) Comply in all material respects with
the applicable provisions of ERISA and the Code and (b) furnish to the
Administrative Agent (i) as soon as possible after, and in any event within 10
days after any Responsible Officer of the Borrower or any ERISA Affiliate knows
or has reason to know that, any ERISA Event has occurred that, alone or together
with any other ERISA Event could reasonably be expected to result in liability
of the Borrower in an aggregate amount exceeding $1,000,000, a statement of a
Financial Officer of the Borrower setting forth details as to such ERISA Event
and the action, if any, that the Borrower proposes to take with respect thereto.
SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
Keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all requirements of law are made of all dealings and
transactions in relation to its business and activities. Each Loan Party will,
and will cause each of its Subsidiaries to, subject to any restrictions
requiring confidentiality or secrecy, permit any representatives designated by
the Agents or any Lender to visit and inspect the financial records and the
properties of Holdings, the Borrower or any Subsidiary at reasonable times and
as often as reasonably requested and to make extracts from and copies of such
financial records, and permit any representatives designated by the Agents or
any Lender to discuss the affairs, finances and condition of Holdings, the
Borrower or any Subsidiary with the officers thereof and independent accountants
therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and request
the issuance of Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 5.09. Compliance with Environmental Laws. Comply, and cause all
lessees and other persons occupying its Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Properties; obtain and renew all material Environmental Permits
necessary for its operations and Properties; and conduct any Remedial Action in
accordance with Environmental Laws; provided, however, that none of the Borrower
or any of the Subsidiaries shall be required to undertake any Remedial Action to
the extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
SECTION 5.10. Preparation of Environmental Reports. If a Default caused by
reason of a breach of Section 3.17 or 5.09 shall have occurred and be
continuing, at the request of the Required Lenders through the Administrative
Agent, provide to the Lenders within 45 days after such request, at the expense
of the Borrower, an environmental site assessment report for the Properties
which are the subject of such Default prepared by an environmental consulting
firm acceptable to the Administrative Agent and indicating the presence or
absence of Hazardous Materials and the estimated cost of any compliance or
Remedial Action in connection with such Properties.
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SECTION 5.11. Audits. (a) From time to time upon the request of the
Collateral Agent or the Required Lenders through the Administrative Agent, but
unless an Event of Default has occurred and is continuing no more frequently
than two times in any 12-month period, and prior to each material Permitted
Acquisition, permit the Collateral Agent or the Lenders or professionals
(including investment bankers, consultants, accountants, lawyers and appraisers)
retained by the Collateral Agent or the Lenders to conduct evaluations and
appraisals of (i) the Borrower's practices in the computation of the Borrowing
Base and (ii) the assets included in the Borrowing Base, and pay the reasonable
fees and expenses of such professionals.
(b) In connection with any evaluation and appraisal relating to the
computation of the Borrowing Base, agree to maintain such additional reserves
(for purposes of computing the Borrowing Base) in respect of the Accounts
included in the Borrowing Base and make such other adjustments to its parameters
for including Accounts in the Borrowing Base as the Collateral Agent or the
Required Lenders through the Administrative Agent shall require based upon the
results of any such evaluation and appraisal.
SECTION 5.12. Further Assurances. Execute any and all further documents,
financing statements, agreements and instruments, and take all further action
(including filing Uniform Commercial Code and other financing statements,
mortgages and deeds of trust and preparing all documentation relating to filings
under the Assignment of Claims Act) that may be required under applicable law,
or that the Required Lenders, the Administrative Agent or the Collateral Agent
may reasonably request, in order to effectuate the transactions contemplated by
the Loan Documents and in order to grant, preserve, protect and perfect the
validity and first priority of the security interests created or intended to be
created by the Security Documents. The Borrower will cause any subsequently
acquired or organized Domestic Subsidiary (other than any Inactive Subsidiary)
or any Domestic Subsidiary that ceases to be an Inactive Subsidiary to execute a
Subsidiary Guarantee Agreement, Indemnity, Subrogation and Contribution
Agreement and each applicable Security Document in favor of the Collateral
Agent. In addition, from time to time, the Borrower will, at its cost and
expense, promptly secure the Obligations by pledging or creating, or causing to
be pledged or created, perfected security interests with respect to such of its
assets and properties as either Agent or the Required Lenders shall designate
(it being understood that it is the intent of the parties that the Obligations
shall be secured by substantially all the assets of the Borrower and its
Subsidiaries (including real and other properties acquired subsequent to the
Closing Date)). Such security interests and Liens will be created under the
Security Documents and other security agreements, mortgages, deeds of trust and
other instruments and documents in form and substance reasonably satisfactory to
the Collateral Agent, and the Borrower shall deliver or cause to be delivered to
the Lenders all such instruments and documents (including legal opinions, title
insurance policies and lien searches) as the Collateral Agent shall reasonably
request to evidence compliance with this Section. The Borrower agrees to provide
such evidence as the Collateral Agent shall reasonably request as to the
perfection and priority status of each such security interest and Lien. In
furtherance of the foregoing, the Borrower will give prompt notice to the Agents
of the acquisition by the Borrower or any Domestic Subsidiary of any real
property (or any interest in real property) having a value in excess of
$750,000.
<PAGE>
61
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, so long as this
Agreement shall remain in effect and until the Commitments have been terminated
and the principal of and interest on each Loan, all Fees and all other expenses
or amounts payable under any Loan Document have been paid in full and all
Letters of Credit have been canceled or have expired and all amounts drawn
thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not, nor will it cause or permit
any of the Subsidiaries to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness for borrowed money existing on the date hereof and
set forth in Schedule 6.01, and any extensions, renewals or replacements
of such Indebtedness to the extent the principal amount of such
Indebtedness is not increased, the weighted average life to maturity of
such Indebtedness is not decreased, such Indebtedness, if subordinated to
the Obligations, remains so subordinated on terms not less favorable to
the Lenders and the original obligors in respect of such Indebtedness
remain the only obligors thereon;
(b) Indebtedness created hereunder and under the other Loan
Documents;
(c) Indebtedness evidenced by Capital Lease Obligations, or secured
pursuant to Section 6.02(h), in each case so long as (i) the related
Capital Expenditure is permitted by Section 6.08 and (ii) the aggregate
principal amount of all Indebtedness permitted to be outstanding under
this paragraph (c) shall not exceed $7,500,000;
(d) Indebtedness in favor of a Lender (or an Affiliate thereof)
under one or more Hedging Agreements approved by the Administrative Agent
(such approval not to be unreasonably withheld);
(e) intercompany Indebtedness of the Borrower and its Subsidiaries
to the extent permitted by Sections 6.04(f) and (h);
(f) Indebtedness with respect to any surety bonds required in the
ordinary course of business of the Borrower and the Subsidiaries, provided
that such Indebtedness shall not at any time exceed $750,000 in the
aggregate;
(g) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount not to exceed $7,500,000 at any time outstanding; and
(h) unsecured Indebtedness of the Borrower incurred in connection
with a Permitted Acquisition subordinated to the Obligations on terms and
conditions no less favorable to the Lenders than those contained in
Exhibit K in an aggregate principal amount not to exceed $4,000,000 at any
time outstanding;
(i) other unsecured Indebtedness of the Borrower and the
Subsidiaries in an aggregate principal amount not to exceed $2,500,000 at
any time outstanding;
<PAGE>
62
(j) Indebtedness to Mellon in connection with purchase cards issued
by Mellon in an aggregate amount not to exceed $500,000 at any time
outstanding; and
(k) Indebtedness of any Subsidiary that exists at the time such
person becomes a Subsidiary and that was not incurred in contemplation of
or in connection with the acquisition by the Borrower or a Subsidiary of
such person in an aggregate principal amount not to exceed $4,000,000 at
any time outstanding.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower and its Subsidiaries
existing on the date hereof and set forth in Schedule 6.02; provided that
such Liens shall secure only those obligations which they secure on the
date hereof;
(b) any Lien created under the Loan Documents;
(c) Liens for taxes not yet due or which are being contested in
compliance with Section 5.03;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
and securing obligations that are not due and payable or which are being
contested in compliance with Section 5.03;
(e) Liens (other than any Lien imposed by ERISA), pledges and
deposits made in the ordinary course of business in compliance with
workmen's compen sation, unemployment insurance and other social security
laws or regulations;
(f) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than Capital Lease
Obligations), statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary
course of business;
(g) zoning restrictions, easements, rights-of-way, restrictions on
use of real property and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not substantial
in amount and do not materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the business of
the Borrower or any of its Subsidiaries;
(h) purchase money security interests in real property, improvements
thereto or equipment hereafter acquired (or, in the case of improvements,
constructed) by the Borrower or any Subsidiary; provided that (i) such
security interests secure Indebtedness permitted by Section 6.01, (ii)
such security interests are incurred, and the Indebtedness secured thereby
is created, within 90 days after such acquisition (or construction), (iii)
the Indebtedness secured thereby does not exceed 100% of the lesser of the
cost or the fair market value of such real property, improvements or
equipment at the time of such acquisition (or construction) and (iv) such
security interests do not apply to any other property or assets of the
Borrower or any Subsidiary;
<PAGE>
63
(i) Liens on assets of Foreign Subsidiaries; provided that (i) such
Liens do not extend to, or encumber, assets of the Borrower or any of its
Domestic Subsidiaries and (ii) such Liens secure only Indebtedness
incurred by such Foreign Subsidiaries pursuant to Section 6.01(g);
(j) Liens that are contractual rights of setoff (i) relating to the
establishment of depository relations with any Lender or any bank with
which the Borrower may maintain accounts in accordance with Section 6.19
and which are not given in connection with the issuance of Indebtedness or
(ii) pertaining to pooled deposit and/or sweep accounts of the Borrower or
any Subsidiary with any Lender to permit satisfaction of overdraft or
similar obligations incurred in the ordinary course of business of the
Borrower and the Subsidiaries;
(k) judgment liens securing judgments that have not resulted in an
Event of Default under paragraph (i) of Article VII; and
(l) any Lien existing on any property or asset of any person that
exists at the time such person becomes a Subsidiary and that secured
Indebtedness permitted by Section 6.01(k); provided that (i) such Lien was
not created in contemplation of or in connection with such acquisition and
(ii) such Lien does not apply to any property or assets of the Borrower or
any other Subsidiary.
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any
arrangement, directly or indirectly, with any person whereby it shall sell or
transfer any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred unless (a) the sale of such
property is permitted by Section 6.05 and (b) the Capital Lease Obligations
arising therefrom are permitted by Section 6.01(c).
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire
any Equity Interests, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person, except:
(a) investments by the Borrower existing on the date hereof in the
Equity Interests of the Subsidiaries and additional investments in the
Equity Interests of domestic Subsidiary Guarantors;
(b) Permitted Investments;
(c) Accounts owing to the Borrower or any of its Subsidiaries
arising from sales of inventory under usual and customary terms in the
ordinary course of business;
(d) advances to officers and employees of the Borrower or any of its
Subsidiaries to meet expenses incurred by such officers and employees in
the ordinary course of business, in an aggregate amount not to exceed
$500,000 at any time outstanding;
(e) securities of any customer of the Borrower or any Subsidiary
received in lieu of cash payment, if the Borrower reasonably deems such
customer to be in a
<PAGE>
64
reorganization or unable to make a timely cash payment on Indebtedness of
such customer owing to it, provided that the Borrower or such Subsidiary,
as the case may be, has paid no new consideration (other than forgiveness
of Indebtedness) therefor;
(f) any Subsidiary may make intercompany loans to the Borrower or
any Subsidiary Guarantor and the Borrower may make intercompany loans and
advances to any Subsidiary Guarantor; provided that any promissory notes
evidencing such intercompany loans shall be pledged (and delivered) by the
Borrower or the respective Domestic Subsidiary Guarantor that is the
lender of such intercompany loan as Collateral pursuant to the Pledge
Agreement; provided further that (i) neither the Borrower nor any Domestic
Subsidiaries may make loans to any Foreign Subsidiaries of the Borrower
pursuant to this paragraph (f) and (ii) any loans made by any Foreign
Subsidiaries to the Borrower or any of its Domestic Subsidiaries pursuant
to this paragraph (f) shall be subordinated to the obligations of the Loan
Parties pursuant to subordination provisions in substantially the form of
Exhibit K;
(g) the Borrower may establish Subsidiaries to the extent permitted
by Section 6.15;
(h) the Borrower and its Domestic wholly owned Subsidiaries may make
loans and advances to, or other investments in, Foreign Subsidiaries of
the Borrower so long as the aggregate amount of any loans, advances or
other investments at any time outstanding (determined without regard to
any write-downs or write-offs thereof) pursuant to this paragraph (h)
shall not exceed $4,000,000;
(i) the Borrower may acquire all or substantially all the assets of
a person or line of business of such person, or not less than 80% of the
Equity Interests of a person (referred to herein as the "Acquired
Entity"); provided that (i) the Acquired Entity shall be a going concern
and shall be in a similar line of business as that of the Borrower and its
Subsidiaries as conducted during the current and most recent calendar
year; (ii) at the time of such transaction (A) both before and after
giving effect thereto, no Event of Default or Default shall have occurred
and be continuing or shall exist; (B) the Borrower would be in compliance
with the covenants set forth in Sections 6.09, 6.10, 6.11, 6.12 and 6.13
as of the most recently completed period of four consecutive fiscal
quarters ending prior to such transaction for which the financial
statements and certificates required by Section 5.04(a) or 5.04(b) have
been delivered or for which comparable financial statements have been
filed with the Securities and Exchange Commission, after giving pro forma
effect to such transaction and to any other event occurring after such
period as to which pro forma recalculation is appropriate (including any
other transaction described in this Section 6.04(i) occurring after such
period) as if such transaction had occurred as of the first day of such
period; (C) based on projections of the Borrower after giving pro forma
effect to such transaction and such other events or transactions, the
Borrower would be in compliance with the covenants set forth in Sections
6.09, 6.10, 6.11, 6.12 and 6.13 for each of the four succeeding calendar
quarters; (D) after giving effect to such acquisition, there must be at
least $10,000,000 of unused and available Revolving Credit Commitments;
and (E) if the total consideration for the acquisition exceeds
$35,000,000, the Required Lenders shall have approved the acquisition;
(iii) the Acquired Entity shall have had a positive EBITDA for the
12-month period immediately preceding the transaction; (iv) the Borrower
shall assume no Indebtedness in connection with such acquisition, except
as permitted by Section 6.01; (v) the Acquired Entity shall not be subject
to any material pending
<PAGE>
65
litigation or material contingent liabilities (any acquisition of an
Acquired Entity meeting all the criteria of this Section 6.04(i) being
referred to herein as a "Permitted Acquisition") and (vi) if the Acquired
Entity would not constitute a wholly owned Subsidiary, each holder of an
Equity Interest therein (other than the Borrower or any wholly owned
Subsidiary) shall have executed and delivered to the Collateral Agent an
acknowledgement, waiver and consent substantially the form of Exhibit M.
All pro forma calculations required to be made pursuant to this Section
6.04(i) shall (i) include only those adjustments that (A) except with
respect to the projections referred to in clause (C) of the preceding
sentence, would be permitted or required by Regulation S-X, and (B) are
based on reasonably detailed written assumptions reasonably acceptable to
the Administrative Agent and (ii) be certified to by a Financial Officer
as having been prepared in good faith based upon reasonable assumptions;
(j) the Borrower may enter into Hedging Agreements to the extent
permitted in Section 6.01(d);
(k) the Borrower or any Subsidiary Guarantor may acquire Margin
Stock of entities in a similar line of business as that of the Borrower
and its Subsidiaries as conducted during the current and most recent
calendar year; provided, however, that (i) the Borrower or any Subsidiary
Guarantor must notify the Agents promptly after any such acquisition, (ii)
after giving effect to such acquisition, there must be at least
$10,000,000 of unused and available Revolving Credit Commitments and (iii)
the Borrower and the Subsidiaries shall not hold Margin Stock with a cost
basis in excess of $25,000,000 in the aggregate at any time (any Margin
Stock acquired and held by the Borrower or any Subsidiary Guarantor in
accordance with this Section 6.04(k) being referred to herein as "Approved
Margin Stock");
(l) Holdings, the Borrower and the Subsidiaries may consummate the
Transactions;
(m) investments existing on the date hereof and set forth on
Schedule 6.04;
(n) investments consisting of non-cash proceeds of Asset Sales for
which the consideration consists of at least 75% cash as required under
Section 6.05;
(o) the Borrower may make loans or advances permitted by clauses
(ii) and (iii) of the first proviso of Section 6.06(a); and
(p) other investments, loans and advances (other than investments in
and loans and advances to Foreign Subsidiaries) in an aggregate amount
(valued at cost or outstanding principal amount, as the case may be) not
greater than $4,000,000 at any time outstanding.
SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions.
(a) Merge into or consolidate with any other person, or permit any other person
to merge into or consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions) all or any
substantial part of the assets of the Borrower (whether now owned or hereafter
acquired) or less than all the Equity Interests of any Subsidiary, or purchase,
lease or otherwise acquire (in one transaction or a series of transactions) all
or any substantial part of the assets of any other person, except that (i) the
Borrower and any Subsidiary may purchase and sell inventory in the ordinary
course of business, (ii) the
<PAGE>
66
Borrower or any wholly owned Subsidiary may make Permitted Acquisitions and
(iii) if at the time thereof and immediately after giving effect thereto no
Event of Default or Default shall have occurred and be continuing (x) any wholly
owned Subsidiary may merge into the Borrower in a transaction in which the
Borrower is the surviving corporation and (y) any wholly owned Subsidiary may
merge into or consolidate with any other wholly owned Subsidiary (or, in order
to consummate a Permitted Acquisition, any other person) in a transaction in
which the surviving entity is a wholly owned Subsidiary and (except in the case
of Permitted Acquisitions) no person other than the Borrower or a wholly owned
Subsidiary receives any consideration, provided that if any such merger
described in this clause (y) shall involve a Domestic Subsidiary, the surviving
entity of such merger shall be a Domestic Subsidiary.
(b) Engage in any Asset Sale otherwise permitted under paragraph (a) above
unless (i) such Asset Sale is for consideration at least 75% of which is cash
(provided that such 75% requirement shall not apply to any Asset Sale
constituting the sale of a business unit if the cash portion of the
consideration received therefor is no less than an amount equal to the product
of (A) six and (B) the amount of EBITDA for the preceding fiscal year directly
attributable to the assets included in such Asset Sale), (ii) such consideration
is at least equal to the fair market value of the assets being sold,
transferred, leased or disposed of and (iii) except with respect to a sale by
the Borrower of all the Equity Interests or all or substantially all the assets
of IMC, the fair market value of all assets sold, transferred, leased or
disposed of pursuant to this paragraph (b) shall not exceed (i) $5,000,000 in
any fiscal year or (ii) $10,000,000 in the aggregate.
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any
dividend or make any other distribution (by reduction of capital or otherwise),
whether in cash, property, securities or a combination thereof, with respect to
any of its Equity Interests or directly or indirectly redeem, purchase, retire
or otherwise acquire for value (or permit any Subsidiary to purchase or acquire)
any of its Equity Interests or set aside any amount for any such purpose;
provided, however, that (i) any Subsidiary may declare and pay dividends or make
other distributions ratably to the holders of its Equity Interests, (ii) so long
as no Event of Default or Default shall have occurred and be continuing or would
result therefrom, the Borrower may, or the Borrower may make distributions to
Holdings so that Holdings may, repurchase its Equity Interests owned by
employees of the Borrower or make payments to employees of the Borrower or any
of its Subsidiaries, in each case upon termination of employment in connection
with the exercise of stock options, stock appreciation rights or similar equity
incentives or equity based incentives pursuant to incentive plans or in
connection with the death or Disability of such employees in an aggregate amount
not to exceed $5,000,000 in any fiscal year (of which not more than $3,000,000
may be used for payments not related to death or Disability) and (iii) so long
as, in the case of clause (w) and (x) only, no Event of Default or Default shall
have occurred and be continuing or would result therefrom, the Borrower may
declare and pay cash dividends or make loans or advances to Holdings (w) in an
amount required by Holdings to be paid as interest under the Seller Purchase
Money Note and the Investor Notes, (x) in an aggregate amount not to exceed
$3,650,000 required by Holdings to be paid as principal under the Seller
Purchase Money Note, (y) in an amount not to exceed $250,000 in any fiscal year,
to the extent necessary to pay general corporate and overhead expenses incurred
by Holdings in the ordinary course of business and (z) in an amount necessary to
make Tax Payments directly attributable to (or arising as a result of) the
operations of the Borrower and its Subsidiaries; provided, however, that (A) the
amount of such dividends shall not exceed the amount that the Borrower and its
Subsidiaries would be required to pay in respect of Federal, State and
<PAGE>
67
local taxes were the Borrower to pay such taxes as a stand-alone taxpayer and
(B) such dividends pursuant to this clause (z) are used by Holdings for such
purposes within 20 days of the receipt of such dividends.
(b) Permit its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any such Subsidiary to (i) pay any dividends or
make any other distributions on its Equity Interests or (ii) make or repay any
loans or advances to the Borrower or the parent of such Subsidiary except (v)
for such encumbrances or restrictions existing under or by reason of (A)
applicable law, (B) this Agreement and the other Loan Documents, (C) the Senior
Subordinated Note Documents or (D) with respect to Foreign Subsidiaries only,
Indebtedness of such Foreign Subsidiaries permitted to be incurred hereunder,
(w) customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Borrower or a Subsidiary of the Borrower,
(x) customary provisions restricting assignment of any agreement entered into by
the Borrower or a Subsidiary in the ordinary course of business, (y) any holder
of a Lien permitted by Section 6.02 may restrict the transfer of the asset or
assets subject thereto and (z) subordination provisions in favor of the Lenders
and required by Section 6.04(f).
SECTION 6.07. Transactions with Affiliates. Except for transactions by or
among Loan Parties, sell or transfer any property or assets to, or purchase or
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except that:
(a) the Borrower or any Subsidiary may engage in any of the
foregoing transactions in the ordinary course of business at prices and on
terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third
parties;
(b) dividends may be paid to the extent provided in Section 6.06;
(c) loans may be made and other transactions may be entered into
between and among the Borrower, Holdings, the Subsidiaries and their
respective Affiliates to the extent permitted by Sections 6.01 and 6.04;
and
(d) so long as no Event of Default or Default shall have occurred
and be continuing or would result therefrom, (i) customary fees may be
paid to non-officer directors of the Borrower in an aggregate amount not
to exceed $250,000 in any fiscal year; (ii) business management fees may
be paid to Caxton-Iseman Capital, Inc. or any of its Affiliates (and such
other reasonable and customary fees may be paid to Caxton-Iseman Capital,
Inc. or such Affiliates as shall be approved by the Board of Directors of
the Borrower for any future advisory services actually rendered by
Caxton-Iseman Capital, Inc. or such Affiliates), in an aggregate amount
not to exceed $1,000,000 in any fiscal year; provided, however, that the
amount of such fees actually paid in any fiscal year does not exceed an
amount equal to the sum of (A) in the event the Interest Coverage Ratio on
the date of the proposed payment is greater than 2.0:1.0 but less than or
equal to 2.25:1.0, $500,000, plus (B) in the event the Interest Coverage
Ratio on the date of any proposed payment exceeds 2.25:1.0, an additional
$500,000, in each case together with the amount of unpaid management fees
accrued in any prior fiscal year that could have been paid in such prior
fiscal year had the Interest Coverage Ratio applicable to clause (A) or
(B) on the date of such proposed payment been in effect on the date of
accrual of such prior year's fee,
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and (iii) an advisory fee in respect of the Merger may be paid to
Caxton-Iseman Capital, Inc. or any of its Affiliates on the Closing Date
in an amount not to exceed the lesser of $1,150,000 or 1% of the total
acquisition cost of the Merger.
SECTION 6.08. Capital Expenditures. Make any Capital Expenditures, except
that (a) during the period (in each case, taken as one accounting period) from
January 1, 1999, through and including December 31, 1999, the Borrower and its
Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed
$6,000,000 and (b) during each fiscal year thereafter (in each case, taken as
one accounting period), the Borrower and its Subsidiaries may make Capital
Expenditures in an aggregate amount not to exceed 1.25% of the consolidated net
sales of the Borrower and its consolidated Subsidiaries for the preceding fiscal
year, as shown on the consolidated financial statements for such year delivered
pursuant to Section 5.04(a) after giving pro forma effect to Permitted
Acquisitions consummated in such preceding fiscal year as if such Permitted
Acquisitions had occurred as of the first day of such fiscal year.
SECTION 6.09. Interest Coverage Ratio. Permit the Interest Coverage Ratio
for any period of four consecutive fiscal quarters, in each case taken as one
accounting period, ending on a date or during any period set forth below to be
less than the amount set forth opposite such date or period below:
<TABLE>
<CAPTION>
Date or Period Ratio
- -------------- -----
<S> <C>
September 30, 1999 through September 30, 2000 1.65:1.0
December 31, 2000 1.75:1.0
March 31, 2001 through December 31, 2001 2.00:1.0
March 31, 2002 through December 31, 2002 2.25:1.0
March 31, 2003 through December 31, 2003 2.50:1.0
March 31, 2004 and thereafter 3.00:1.0
</TABLE>
SECTION 6.10. Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio for any period of four consecutive fiscal quarters, in each case
taken as one accounting period, ending during any period set forth below to be
less than the amount set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
September 30, 1999 through December 31, 2001 1.0:1.0
March 31, 2002 and thereafter 1.05:1.0
</TABLE>
SECTION 6.11. Maximum Leverage Ratio. Permit the Leverage Ratio at any
time during a period set forth below to be greater than the ratio set forth
opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
September 30, 1999 through December 31, 1999 5.75:1.0
January 1, 2000 through December 31, 2000 5.50:1.0
January 1, 2001 through December 31, 2001 5.25:1.0
January 1, 2002 through December 31, 2002 5.00:1.0
January 1, 2003 through December 31, 2003 4.75:1.0
January 1, 2004 and thereafter 4.50:1.0
</TABLE>
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69
SECTION 6.12. Senior Leverage Ratio. Permit the Senior Leverage Ratio at
any time during a period set forth below to be greater than the ratio set forth
opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
September 30, 1999 through December 31, 2000 3.75:1.0
January 1, 2001 through December 31, 2001 3.50:1.0
January 1, 2002 and thereafter 3.25:1.0
</TABLE>
SECTION 6.13. Minimum EBITDA. Without giving effect to any Permitted
Acquisitions completed in the relevant period, permit EBITDA for any period of
four consecutive fiscal quarters ending on or before December 31, 2001, in each
case taken as one accounting period, ended on the last day of any fiscal quarter
set forth below to be less than the amount set forth opposite such fiscal
quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter EBITDA
- -------------- ------
<S> <C>
September 30, 1999 through December 31, 1999 $30,000,000
March 31, 2000 through December 31, 2000 $33,000,000
March 31, 2001 through December 31, 2001 $37,000,000
</TABLE>
SECTION 6.14. Limitation on Modifications of Indebtedness; Modifications
of Certificate of Incorporation, By-laws and Certain Other Agreements, etc. (a)
Amend or modify, or permit the amendment or modification of, any provision of
existing Indebtedness or of any agreement (including any purchase agreement,
indenture, loan agreement or security agreement) relating thereto other than any
amendments or modifications to Indebtedness which do not in any way materially
adversely affect the interests of the Lenders, (b) make (or give any notice in
respect of) any voluntary or optional payment or prepayment on or redemption or
acquisition for value of, or any prepayment or redemption as a result of any
asset sale, change of control or similar event of, any Senior Subordinated
Notes, (c) amend or modify, or permit the amendment or modification of, the
Merger Agreement or any of the operating agreements entered into in connection
therewith or any tax sharing agreement, in each case except for amendments or
modifications which are not in any way adverse in any material respect to the
interests of the Lenders, (d) amend, modify or change its Certificate of
Incorporation (including by the filing or modification of any certificate of
designation) or By-laws, or any agreement entered into by it, with respect to
its Equity Interests (including any shareholders' agreement), or enter into any
new agreement with respect to its Equity Interests, other than any amendments,
modifications or changes pursuant to this clause (d) or any such new agreements
pursuant to this clause (d) which do not in any way materially adversely affect
the interests of the Lenders; provided that nothing in this clause (d) shall
prevent the Borrower or any of its Subsidiaries from amending its Certificate of
Incorporation or By-laws to provide indemnification to any officer or director
of the Borrower or any such Subsidiary to the maximum extent permitted by the
law of its jurisdiction of incorporation or (e) amend, modify or change, or
permit the amendment, modification or change of, the charter, by-laws or other
organizational documents of each of Anteon VDS Foreign Enterprises LLC and
Anteon VDS Foreign Investments LLC, each a Delaware limited liability company
and wholly owned subsidiary of the Borrower, to permit such companies to engage
in any activity other than owning all the outstanding shares of capital stock of
Yuhan Hoeysa Anteon VDS-Korea.
<PAGE>
70
SECTION 6.15. Limitation on Creation of Subsidiaries. Establish or create
any additional Subsidiaries; provided that the Borrower may establish or create
one or more Subsidiaries of the Borrower so long as (a) at least 80% of the
Equity Interests of such Subsidiary is owned by the Borrower or a wholly owned
Subsidiary, (b) 100% of the Equity Interests so owned by Borrower or such
Subsidiary of any new Subsidiary (except that not more than 65% of the voting
Equity Interests of any Foreign Subsidiary owned by a Loan Party shall be
required to be so pledged) is upon the creation or establishment of any such new
Subsidiary pledged and delivered to the Collateral Agent for the benefit of the
Secured Parties under the Pledge Agreement and (c) upon the creation or
establishment of any such new Domestic Subsidiary such Domestic Subsidiary
becomes a party to the applicable Security Documents in accordance with Section
5.12 and the other Loan Documents (and if such new Domestic Subsidiary is not a
wholly owned Subsidiary of Borrower, each owner of any minority Equity Interest
in such new Domestic Subsidiary shall have consented to such new Domestic
Subsidiary becoming party to the applicable Security Documents and other Loan
Documents and executed an acknowledgment, waiver and consent substantially in
the form of Exhibit M).
SECTION 6.16. Business. Engage (directly or indirectly) in any business
other than the business in which the Borrower and its Subsidiaries are engaged
on the Closing Date and other businesses reasonably related thereto.
SECTION 6.17. Designated Senior Indebtedness. Designate any indebtedness
as "Designated Senior Indebtedness" for purposes of the Senior Subordinated Note
Indenture unless the Required Lenders specifically consent thereto in writing.
SECTION 6.18. Fiscal Year. With respect the Borrower, change its fiscal
year end to a date other than December 31.
SECTION 6.19. Maintenance of Accounts. With respect to the Borrower and
the Domestic Subsidiaries, maintain any bank account, other than payroll and
petty cash accounts, with any financial institution that is not a Lender.
ARTICLE VII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or in connection
with any Loan Document or the borrowings or issuances of Letters of Credit
hereunder, or any representation, warranty, statement or information contained
in any report, certificate, financial statement or other instrument furnished in
connection with or pursuant to any Loan Document, shall prove to have been false
or misleading in any material respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan or
the reimbursement with respect to any L/C Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or by acceleration thereof or otherwise;
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71
(c) default shall be made in the payment of any interest on any Loan or
any Fee or L/C Disbursement or any other amount (other than an amount referred
to in (b) above) due under any Loan Document, when and as the same shall become
due and payable, and such default shall continue unremedied for a period of five
Business Days;
(d) default shall be made in the due observance or performance by the
Borrower or any Subsidiary of any covenant, condition or agreement contained in
Section 5.01(a) insofar as it relates to the existence of the Borrower, 5.05 or
5.08 or in Article VI;
(e) default shall be made in the due observance or performance by
Holdings, the Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in (b), (c) or (d)
above) and such default shall continue unremedied for a period of 20 days after
notice thereof from the Administrative Agent or any Lender to the Borrower;
(f) Holdings, the Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any one or more
items of Indebtedness in a principal amount in excess of $3,000,000 in the
aggregate, when and as the same shall become due and payable, or (ii) fail to
observe or perform any other term, covenant, condition or agreement contained in
any agreement or instrument evidencing or governing any such Indebtedness if the
effect of any failure referred to in this clause (ii) is to cause, or to permit
the holder or holders of such Indebtedness or a trustee on its or their behalf
(with or without the giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of Holdings, the Borrower or any Subsidiary, or of a substantial part
of the property or assets of Holdings, the Borrower or a Subsidiary, under Title
11 of the United States Code, as now constituted or hereafter amended, or any
other Federal, state or foreign bankruptcy, insolvency, receivership or similar
law, (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Holdings, the Borrower or any Subsidiary or
for a substantial part of the property or assets of Holdings, the Borrower or a
Subsidiary or (iii) the winding-up or liquidation of Holdings, the Borrower or
any Subsidiary; and such proceeding or petition shall continue undismissed for
60 days or an order or decree approving or ordering any of the foregoing shall
be entered;
(h) Holdings, the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
Federal, state or foreign bankruptcy, insolvency, receivership or similar law,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described in
(g) above, (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Holdings, the
Borrower or any Subsidiary or for a substantial part of the property or assets
of Holdings, the Borrower or any Subsidiary, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) become unable,
admit in writing its inability or fail generally to pay its debts as they become
due or (vii) take any action for the purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate amount
in excess of $5,000,000 shall be rendered against Holdings, the Borrower, any
Subsidiary or
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any combination thereof and the same shall remain undischarged for a period of
30 consecutive days during which execution shall not be effectively stayed, or
any action shall be legally taken by a judgment creditor to levy upon assets or
properties of Holdings, the Borrower or any Subsidiary to enforce any such
judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events, could
reasonably be expected to result in liability of the Borrower and its ERISA
Affiliates in an aggregate amount exceeding $5,000,000;
(k) any security interest purported to be created by any Security Document
shall cease to be, or shall be asserted by the Borrower or any other Loan Party
not to be, a valid, perfected, first priority (except as otherwise expressly
provided in this Agreement or such Security Document) security interest in the
securities, assets or properties covered thereby, except to the extent that any
such loss of perfection or priority results from the failure of the Collateral
Agent to maintain possession of certificates representing securities pledged
under the Pledge Agreement and except to the extent that such loss is covered by
a lender's title insurance policy and the related insurer promptly after such
loss shall have acknowledged in writing that such loss is covered by such title
insurance policy;
(l) any of the Obligations shall cease to constitute "Senior Indebtedness"
under and as defined in the Senior Subordinated Note Indenture;
(m) there shall have occurred a Change in Control; or
(n) (i) A notice of debarment, notice of suspension or notice of
termination for default shall have been issued under any Government Contract;
(ii) the Borrower is barred or suspended from contracting with any part of the
Government; (iii) a Government investigation shall have resulted in a criminal
or civil liability in excess of $5,000,000; (iv) the actual termination of any
Material Contract due to alleged fraud, wilful misconduct, neglect, default or
any other wrongdoing; or (v) a cure notice (other than any immaterial cure
notice under any General Services Administration contract) issued under any
Government Contract shall remain uncured (subject to expiration of extensions
that may have been received) beyond (A) the expiration of the time period
available to the Borrower pursuant to such Government Contract and/or such cure
notice, to cure the noticed default, or (B) the date on which the other
contracting party is entitled to exercise its rights and remedies under the
Government Contract as a consequence of such default;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding; and in any event
with respect to the Borrower described in paragraph (g) or (h) above, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all
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73
other liabilities of the Borrower accrued hereunder and under any other Loan
Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding.
ARTICLE VIII
The Administrative Agent and the Collateral Agent
In order to expedite the transactions contemplated by this Agreement,
Credit Suisse First Boston is hereby appointed to act as Administrative Agent
and Mellon Bank, N.A. is hereby appointed to act as Collateral Agent, each on
behalf of the Lenders and the Issuing Bank. Each of the Lenders and each
assignee of any such Lender, hereby irrevocably authorizes the Agents to take
such actions on behalf of such Lender or assignee or the Issuing Bank and to
exercise such powers as are specifically delegated to the Agents by the terms
and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders and the Issuing Bank,
without hereby limiting any implied authority, (a) to receive on behalf of the
Lenders and the Issuing Bank all payments of principal of and interest on the
Loans, all payments in respect of L/C Disbursements and all other amounts due to
the Lenders hereunder, and promptly to distribute to each Lender or the Issuing
Bank its proper share of each payment so received; (b) to give notice on behalf
of each of the Lenders to the Borrower of any Event of Default specified in this
Agreement of which the Administrative Agent has actual knowledge acquired in
connection with its agency hereunder; and (c) to distribute to each Lender
copies of all notices, financial statements and other materials delivered by the
Borrower or any other Loan Party pursuant to this Agreement or the other Loan
Documents as received by the Administrative Agent. Without limiting the
generality of the foregoing, the Agents are hereby expressly authorized to
execute any and all documents (including releases) with respect to the
Collateral and the rights of the Secured Parties with respect thereto, as
contemplated by and in accordance with the provisions of this Agreement and the
Security Documents.
Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrower or any other Loan Party of any of the terms, conditions, covenants or
agreements contained in any Loan Document. The Agents shall not be responsible
to the Lenders for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement or any other Loan Documents, instruments or
agreements. The Agents shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on all
the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. Neither the Agents nor any of their respective directors, officers,
employees or agents shall have any responsibility to the Borrower or any other
Loan Party on account of the failure of or delay in performance or breach by any
Lender or the Issuing Bank of any of its obligations hereunder or to any Lender
or the Issuing Bank on account of the failure of or delay in performance or
breach by
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74
any other Lender or the Issuing Bank or the Borrower or any other Loan Party of
any of their respective obligations hereunder or under any other Loan Document
or in connection herewith or therewith. Each of the Agents may execute any and
all duties hereunder by or through agents or employees and shall be entitled to
rely upon the advice of legal counsel selected by it with respect to all matters
arising hereunder and shall not be liable for any action taken or suffered in
good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that neither Agent shall be under any duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agree ment unless it shall be requested in writing to do so
by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as provided
below, either Agent may resign at any time by notifying the Lenders and the
Borrower. Upon any such resignation, the Required Lenders shall have the right
(with the consent of the Borrower, not to be unreasonably withheld) to appoint a
successor. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring Agent
gives notice of its resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent (with the consent of the Borrower, not to be
unreasonably withheld) which shall be a bank with an office in New York, New
York, having a combined capital and surplus of at least $500,000,000 or an
Affiliate of any such bank. Upon the acceptance of any appointment as Agent
hereunder by a successor bank, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After the Agent's resignation hereunder, the provisions of this Article and
Section 9.05 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with Holdings, the Borrower or any
Subsidiary or other Affiliate thereof as if it were not an Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in the amount
of its pro rata share (based on the aggregate amount of its outstanding Term
Loans and Revolving Credit Commitments hereunder) of any expenses incurred for
the benefit of the Lenders by the Agents, including counsel fees and
compensation of agents and employees paid for services rendered on behalf of the
Lenders, that shall not have been reimbursed by the Borrower and (b) to
indemnify and hold harmless each Agent and any of its directors, officers,
employees or agents, on demand, in the amount of such pro rata share, from and
against any and all liabilities, taxes, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by or asserted against it in
its capacity as Agent or any of them in any way relating to or arising out of
this Agreement or any other Loan Document or any action taken or omitted by it
or any of them under this Agreement or any other Loan Document, to the extent
the same shall not have been reimbursed by the Borrower or any other Loan Party,
provided that no Lender shall be liable to an Agent or any such other
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Agent or any of its directors, officers, employees
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75
or agents. Each Revolving Credit Lender agrees to reimburse the Issuing Bank and
its directors, employees and agents, in each case, to the same extent and
subject to the same limitations as provided above for the Agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agents or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement or any other Loan Document, any related agreement or any
document furnished hereunder or thereunder. Each of the parties hereto
acknowledges and agrees that neither the Syndication Agent nor the Documentation
Agent shall have any duties, responsibilities, obligations or liabilities, as
such, hereunder or under the other Loan Documents.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by fax, as follows:
(a) if to the Borrower or Holdings, to it at 3211 Jermantown Road,
Suite 700, Fairfax, Virginia 22030-2801, Attention of Curtis L. Schehr,
Esq. (Fax No. (703) 246-0629), with a copy to Paul, Weiss, Rifkind,
Wharton & Garrison, 1285 Avenue of the Americas, New York, New York
10019-6064, Attention of Carl L. Reisner, Esq. (Fax No. (212) 757-3990);
(b) if to the Administrative Agent, to Credit Suisse First Boston,
Eleven Madison Avenue, New York, New York 10010, Attention of David Dodd
(Fax No. (212) 325-8304, with a copy to Credit Suisse First Boston, at
Eleven Madison Avenue, New York, New York 10010, Attention of Matthew
Carter (Fax No. (212) 325-8304);
(c) if to the Collateral Agent, to Mellon Bank, N.A., 1901 Research
Blvd., Room 201-0320, 6th Floor, Rockville, MD 20850, Attention of Leslie
Grizzard (Fax No. (301) 309-3458); and
(d) if to a Lender, to it at its address (or fax number) set forth
on Schedule 2.01 or in the Assignment and Acceptance pursuant to which
such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by fax
or on the date five Business Days after dispatch by certified or registered mail
if mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 9.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this
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Section 9.01. Any party may change its address for Notices by giving notice of
such change to each party in accordance with this Section 9.01
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower or Holdings herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Bank, regardless of any investigation made by the Lenders or the Issuing
Bank or on their behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05
shall remain operative and in full force and effect regardless of the expiration
of the term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any of the Loans, the expiration of the Commitments,
the expiration of any Letter of Credit, the invalidity or unenforceability of
any term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative Agent, the Collateral
Agent, any Lender or the Issuing Bank.
SECTION 9.03. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower, Holdings and the Administrative
Agent and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties
hereto, and thereafter shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the permitted successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Borrower, Holdings, the Administrative
Agent, the Issuing Bank or the Lenders that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitments and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate or Related Fund of such Lender, (x) the Borrower and the
Administrative Agent (and, in the case of any assignment of a Revolving Credit
Commitment, the Issuing Bank and the Swingline Lender) must give their prior
written consent to such assignment (which consent shall not be unreasonably
withheld or delayed); provided, however, that the consent of the Borrower shall
not be required to any such assignment during the continuance of any Event of
Default described in subsection (g) or (h) of Article VII, and (y) the amount of
the Commitment of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$2,500,000 (or, if less, the entire remaining amount of such Lender's
Commitment) or such lesser amount as the Borrower and the Administrative Agent
may from time to time agree (such agreement to be conclusively evidenced by the
execution of the related Assignment and Acceptance by all the parties thereto),
(ii) the parties to each such assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together
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(except in the case of any assignment to an Affiliate or a Related Fund) with a
processing and recordation fee of $3,500 and (iii) the assignee, if it shall not
be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this
Section 9.04, from and after the effective date specified in each Assignment and
Acceptance, (A) the assignee thereunder shall be a party hereto and, to the
extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and (B) the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto but shall continue to be entitled
to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees
accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Term Loan Commitment and Revolving Credit Commitment, and the outstanding
balances of its Term Loans and Revolving Loans, in each case without giving
effect to assignments thereof which have not become effective, are as set forth
in such Assignment and Acceptance, (ii) except as set forth in (i) above, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto, or the financial condition of the Borrower or any Subsidiary or the
performance or observance by the Borrower or any Subsidiary of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements referred
to in Section 3.05(a) or delivered pursuant to Section 5.04 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (v) such
assignee will independently and without reliance upon the Administrative Agent,
the Collateral Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (vi) such assignee appoints and authorizes the Administrative
Agent and the Collateral Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Administrative
Agent and the Collateral Agent, respectively, by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of New York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive and the Borrower, the Administrative Agent, the Issuing Bank,
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the Collateral Agent and the Lenders may treat each person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank,
the Collateral Agent and any Lender, at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Borrower, the Swingline
Lender, the Issuing Bank and the Administrative Agent to such assignment, the
Administrative Agent shall (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give prompt
notice thereof to the Lenders and the Issuing Bank. No assignment shall be
effective unless it has been recorded in the Register as provided in this
paragraph (e).
(f) Each Lender may without the consent of the Borrower, the Swingline
Lender, the Issuing Bank or the Administrative Agent sell participations to one
or more banks or other entities in all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided, however, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other entities shall be
entitled to the benefit of the cost protection provisions contained in Sections
2.14, 2.16 and 2.20 and shall be bound by the confidentiality provisions
contained in Section 9.16 to the same extent as if they were Lenders and (iv)
the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans or L/C Disbursements and to approve any amendment, modification or waiver
of any provision of this Agreement (other than amendments, modifications or
waivers decreasing any fees payable hereunder or the amount of principal of or
the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans,
increasing or extending the Commitments or releasing all or substantially all
the Guarantors or the Collateral). All amounts payable by the Borrower to any
Lender hereunder in respect of any Loan and the applicability of the cost
protection provisions contained in Section 2.14, 2.16 and 2.20 shall be
determined as if such Lender had not sold or agreed to sell any participation in
such Loan, and as if such Lender were funding the participated portion of such
Loan the same way that it is funding the portion of such Loan in which no
participation has been sold.
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; provided that, prior to any such disclosure of
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information on
terms no less restrictive than those applicable to the Lenders pursuant to
Section 9.16.
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(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to secure extensions of credit to such Lender or in support
of obligations owed by such Lender; provided that no such assignment shall
release a Lender from any of its obligations hereunder or substitute any such
assignee for such Lender as a party hereto.
(i) Notwithstanding anything to the contrary contained herein, any Lender
(a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"),
identified as such in writing from time to time by the Granting Lender to the
Administrative Agent and the Borrower, the option to provide to the Borrower all
or any part of any Loan that such Granting Lender would otherwise be obligated
to make to the Borrower pursuant to this Agreement; provided that (i) nothing
herein shall constitute a commitment by any SPC to make any Loan and (ii) if an
SPC elects not to exercise such option or otherwise fails to provide all or any
part of such Loan, the Granting Lender shall be obligated to make such Loan
pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall
utilize the Commitment of the Granting Lender to the same extent, and as if,
such Loan were made by such Granting Lender. Each party hereto hereby agrees
that no SPC shall be liable for any indemnity or similar payment obligation
under this Agreement (all liability for which shall remain with the Granting
Lender). In furtherance of the foregoing, each party hereto hereby agrees (which
agreement shall survive the termination of this Agreement) that, prior to the
date that is one year and one day after the payment in full of all outstanding
commercial paper or other senior indebtedness of any SPC, it will not institute
against, or join any other person in instituting against, such SPC any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
under the laws of the United States or any State thereof. In addition,
notwithstanding anything to the contrary contained in this Section 9.04, any SPC
may (i) with notice to, but without the prior written consent of, the Borrower
and the Administrative Agent and without paying any processing fee therefore,
assign all or a portion of its interests in any Loans to the Granting Lender or
to any financial institutions (consented to by the Borrower and Administrative
Agent) providing liquidity and/or credit support to or for the account of such
SPC to support the funding or maintenance of Loans and (ii) disclose on a
confidential basis any non-public information relating to its Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC.
(j) Neither Holdings nor the Borrower shall assign or delegate any of its
rights or duties hereunder without the prior written consent of the
Administrative Agent, the Issuing Bank and each Lender, and any attempted
assignment without such consent shall be null and void.
(k) In the event that Standard & Poor's Ratings Group, Moody's Investors
Service, Inc., and Thompson's BankWatch (or InsuranceWatch Ratings Service, in
the case of Lenders that are insurance companies (or Best's Insurance Reports,
if such insurance company is not rated by Insurance Watch Ratings Service))
shall, after the date that any Lender becomes a Revolving Credit Lender,
downgrade the long-term certificate deposit ratings of such Lender, and the
resulting ratings shall be below BBB-, Baa3 and C (or BB, in the case of a
Lender that is an insurance company (or B, in the case of an insurance company
not rated by InsuranceWatch Ratings Service)), then the Issuing Bank shall have
the right, but not the obligation, at its own expense, upon notice to such
Lender and the Administrative Agent, to replace (or to request the Borrower to
use its reasonable efforts to replace) such Lender with an assignee (in
accordance with and subject to the restrictions contained in paragraph (b)
above), and such Lender hereby agrees to transfer and assign without recourse
(in accordance with and subject to the restrictions contained in paragraph (b)
above) all its interests, rights and obligations in respect of its Revolving
Credit
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80
Commitment to such assignee; provided, however, that (i) no such assignment
shall conflict with any law, rule and regulation or order of any Governmental
Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall
pay to such Lender in immediately available funds on the date of such assignment
the principal of and interest accrued to the date of payment on the Loans made
by such Lender hereunder and all other amounts accrued for such Lender's account
or owed to it hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower and Holdings agree,
jointly and severally, to pay all out-of-pocket expenses incurred by the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Swingline
Lender in connection with the syndication of the credit facilities provided for
herein and the preparation and administration of this Agreement and the other
Loan Documents or in connection with any amendments, modifications or waivers of
the provisions hereof or thereof (whether or not the transactions hereby or
thereby contemplated shall be consummated) or incurred by the Administrative
Agent, the Collateral Agent or any Lender in connection with the enforcement or
protection of its rights in connection with this Agreement and the other Loan
Documents or in connection with the Loans made or Letters of Credit issued
hereunder, including the fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent, and, in connection with any such
enforcement or protection, the fees, charges and disbursements of any other
counsel for the Administrative Agent, the Collateral Agent or any Lender.
(b) The Borrower and Holdings agree, jointly and severally, to indemnify
the Administrative Agent, the Collateral Agent, each Lender and the Issuing
Bank, each Affiliate of any of the foregoing persons and each of their
respective directors, officers, trustees, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans or issuance of Letters of
Credit, (iii) any claim, litigation, investigation or proceeding relating to any
of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any
actual or alleged presence or Release of Hazardous Materials on any property
owned or operated by the Borrower or any of the Subsidiaries, or any
Environmental Claim related in any way to the Borrower or the Subsidiaries;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the expiration of the Commitments, the expiration of any Letter of
Credit, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Administrative Agent, the Collateral Agent, any Lender or the Issuing
Bank. All amounts due under this Section 9.05 shall be payable on written demand
therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, except to
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81
the extent prohibited by law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower or Holdings against any of and all the obligations of
the Borrower or Holdings now or hereafter existing under this Agreement and
other Loan Documents held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 9.06 are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN
DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in
exercising any power or right hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower or any other Loan Party therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice or demand on the Borrower or Holdings in
any case shall entitle the Borrower or Holdings to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower, Holdings and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan or any date for reimbursement of an L/C Disbursement,
or waive or excuse any such payment or any part thereof, or decrease the rate of
interest on any Loan or L/C Disbursement, without the prior written consent of
each Lender affected thereby, (ii) decrease other than on a pro rata basis or
increase or extend the Commitment or decrease or extend the date for payment of
the Commitment Fees of any Lender without the prior written consent of such
Lender, (iii) amend or modify the pro rata requirements of Section 2.17, the
provisions of Section 9.04(i), the provisions of this Section, the definition of
the term "Required Lenders" or release any Guarantor (other than pursuant to a
permitted sale or liquidation of a Subsidiary Guarantor) or all or any
substantial part of the Collateral, without the prior written
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82
consent of each Lender, (iv) amend or modify the protections afforded to an SPC
pursuant to the provisions of Section 9.04(i) without the written consent of
such SPC or (v) increase the advance rates set forth in the definition of the
term "Borrowing Base" in Section 1.01 or change the definition of the term
"Eligible Billed Borrowing Base Receivables", "Eligible Unbilled Borrowing Base
Receivables" or "Eligible Margin Stock Amount" without the prior written consent
of the Supermajority Lenders; provided further that no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender hereunder
or under any other Loan Document without the prior written consent of the
Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline
Lender, respectively. Notwithstanding the foregoing, if the Borrower shall
request the release of any Collateral to be sold as part of any Asset Sale
permitted under Section 6.05 and shall deliver to the Collateral Agent a
certificate to the effect that such Asset Sale and the disposition of the
proceeds thereof will comply with the terms of this Agreement, the Collateral
Agent, if satisfied that the applicable certificate is correct, shall and is
hereby authorized to, without the consent of any Lender, execute and deliver all
such instruments as may be required to effect the release of such Collateral.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the interest rate applicable to any Loan or
participation in any L/C Disbursement, together with all fees, charges and other
amounts which are treated as interest on such Loan or participation in such L/C
Disbursement under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan or participation in
accordance with applicable law, the rate of interest payable in respect of such
Loan or participation hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of such Loan or
participation but were not payable as a result of the operation of this Section
9.09 shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or participations or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with
interest thereon at the Federal Funds Effective Rate to the date of repayment,
shall have been received by such Lender.
SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the
other Loan Documents constitute the entire contract between the parties relative
to the subject matter hereof. Any other previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Loan Documents. Nothing in this Agreement or in the other Loan
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto and thereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN
<PAGE>
83
DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby (it being understood that the
invalidity of a particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other jurisdiction).
The parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforce able provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract, and shall become effective as provided in Section 9.03.
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each of
Holdings and the Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York State
court or Federal court of the United States of America sitting in the Borough of
Manhattan in New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement or the other
Loan Documents, or for recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that the Administrative Agent, the Collateral
Agent, the Issuing Bank or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against the
Borrower, Holdings or their respective properties in the courts of any
jurisdiction.
(b) Each of Holdings and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
the other Loan Documents in any such New York State or Federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
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84
SECTION 9.16. Confidentiality. The Administrative Agent, the Collateral
Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and
to use its reasonable best efforts to cause its respective agents and
representatives to keep confidential) the Information (as defined below) and all
copies thereof, extracts therefrom and analyses or other materials based
thereon, except that the Administrative Agent, the Collateral Agent, the Issuing
Bank or any Lender shall be permitted to disclose Information (a) to such of its
respective officers, directors, employees, agents, affiliates and
representatives as need to know such Information, (b) to a potential assignee or
participant of such Lender or any direct or indirect contractual counterparty in
any swap agreement relating to the Loans or such potential assignee's or
participant's or counterparty's advisors who need to know such Information
(provided that any such potential assignee or participant or counterparty shall,
and shall use its reasonable best efforts to cause its advisors to, keep
confidential all such Information on the terms set forth in this Section 9.16),
(c) to the extent requested by any regulatory authority, (d) to the extent
otherwise required by applicable laws and regulations or by any subpoena or
similar legal process, (e) in connection with any suit, action or proceeding
relating to the enforcement of its rights hereunder or under the other Loan
Documents or (f) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section 9.16 or (ii) becomes
available to the Administrative Agent, the Issuing Bank, any Lender or the
Collateral Agent on a nonconfidential basis from a source other than the
Borrower or Holdings. For the purposes of this Section, "Information" shall mean
all financial statements, certificates, reports, agreements and information
(including all analyses, compilations and studies prepared by the Administrative
Agent, the Collateral Agent, the Issuing Bank or any Lender based on any of the
foregoing) that are received from the Borrower or Holdings and related to the
Borrower or Holdings, any shareholder of the Borrower or Holdings or any
employee, customer or supplier of the Borrower or Holdings, other than any of
the foregoing that were available to the Administrative Agent, the Collateral
Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to its
disclosure thereto by the Borrower or Holdings, and which are in the case of
Information provided after the date hereof, clearly identified at the time of
delivery as confidential or of such a nature that a prudent person would expect
such Information to be confidential. The provisions of this Section 9.16 shall
remain operative and in full force and effect regardless of the expiration and
term of this Agreement.
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85
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
ANTEON CORPORATION,
by _________________________
Name:
Title:
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86
CREDIT SUISSE FIRST BOSTON,
individually and as Administrative Agent and
Issuing Bank,
by _________________________
Name:
Title:
by: ________________________
Name:
Title:
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87
MELLON BANK, N.A., individually and as
Collateral Agent, Swingline Lender and
Syndication Agent,
by _________________________
Name:
Title
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88
DEUTSCHE BANK AG, New York and/or Cayman
Islands Branches, individually and as
Documentation Agent,
by _________________________
Name:
Title:
by _________________________
Name:
Title:
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89
THE BANK OF NOVA SCOTIA,
by _________________________
Name:
Title:
<PAGE>
90
BANK POLSKA KASA OPIEKI S.A.,
PEKAO S.A. GROUP, New York Branch,
by _________________________
Name:
Title:
<PAGE>
91
FLEET NATIONAL BANK,
by _________________________
Name:
Title:
<PAGE>
92
GREEN TREE FINANCIAL SERVICING
CORP.,
by _________________________
Name:
Title:
<PAGE>
93
IBM CREDIT CORPORATION,
by _________________________
Name:
Title:
<PAGE>
94
TRANSAMERICA BUSINESS CREDIT
CORPORATION,
by _________________________
Name:
Title:
<PAGE>
Exhibit 10.5
PLEDGE AGREEMENT dated as of June 23, 1999, among ANTEON
CORPORATION, a Virginia corporation (the "BORROWER"), AZIMUTH
TECHNOLOGIES, INC., a Delaware corporation ("AZIMUTH"), each
Subsidiary of the Borrower listed on Schedule I hereto (each
such Subsidiary individually a "SUBSIDIARY PLEDGOR" and
collectively, the "SUBSIDIARY PLEDGORS"; the Borrower, Azimuth
and the Subsidiary Pledgors are referred to collectively
herein as the "PLEDGORS") and MELLON BANK, N.A., a national
banking association ("MELLON"), as collateral agent (in such
capacity, the "COLLATERAL AGENT") for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of June 23, 1999
(as amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank,
Mellon, as Collateral Agent, swingline lender and syndication agent, and
Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee
Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise
modified from time to time, the "GUARANTEE AGREEMENT") among the Subsidiary
Pledgors and the Collateral Agent. Capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, in each
case pursuant to, and upon the terms and subject to the conditions specified in,
the Credit Agreement. The Subsidiary Guarantors have agreed to guarantee, among
other things, all the obligations of the Borrower under the Credit Agreement.
The obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the execution and
delivery by the Pledgors of a Pledge Agreement in the form hereof to secure (a)
the due and punctual payment by the Borrower of (i) the principal of and
premium, if any, and interest (including interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made by the
Borrower under the Credit Agreement in respect of any Letter of Credit, when and
as due, including payments in respect of reimbursement of disbursements,
interest thereon and obligations to provide cash collateral, and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Borrower to the Secured Parties under this
Agreement, the Credit Agreement and the other Loan Documents, (b) the due and
punctual performance of all covenants, agreements, obligations and liabilities
of the Borrower under or pursuant to this Agreement, the Credit Agreement and
the other Loan Documents, (c) the due and punctual payment and performance of
all the covenants, agreements, obligations and liabilities of each Loan Party
under or pursuant to this Agreement and the other Loan Documents, (d) unless
otherwise agreed upon in writing by the applicable Lender party thereto, the due
and punctual payment and performance of all obligations of the Borrower,
monetary or otherwise, under each Hedging Agreement entered into with (i)
Mellon, pursuant to a Master Agreement for Swaps dated May 6, 1998, between
<PAGE>
2
the Borrower and Mellon and (ii) any counterparty that was a Lender (or an
Affiliate of a Lender) at the time such Hedging Agreement was entered into and
(e) the due and punctual payment and performance of all obligations of any Loan
Party in respect of (i) overdrafts and related liabilities incurred in the
ordinary course of business owed to Mellon or any of its Affiliates and arising
from treasury, depository and cash management services or in connection with any
automated clearing house transfers of funds and (ii) indebtedness to Mellon in
connection with purchase cards issued by Mellon in an aggregate amount not to
exceed $500,000 (all the monetary and other obligations referred to in the
preceding lettered clauses of this paragraph being referred to collectively as
the "OBLIGATIONS").
Accordingly, the Pledgors and the Collateral Agent, on behalf of itself
and each Secured Party (and each of their respective successors or assigns),
hereby agree as follows:
SECTION 1. PLEDGE. As security for the payment and performance, as the
case may be, in full of the Obligations, each Pledgor hereby transfers, grants,
bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the
Collateral Agent, its successors and assigns, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in all of the Pledgor's right, title and
interest in, to and under (a) Equity Interests owned by it and listed on
Schedule II hereto and any Equity Interests of the Borrower or any Subsidiary
(other than any Inactive Subsidiary) obtained in the future by the Pledgor and
the certificates representing all such Equity Interests (the "PLEDGED STOCK");
PROVIDED that the Pledged Stock shall not include (i) more than 65% of the
issued and outstanding shares of voting capital stock and 100% of the issued and
outstanding shares of nonvoting capital stock (if any) of any Foreign
Subsidiary, (ii) to the extent that applicable law requires that a Subsidiary of
the Pledgor issue directors' qualifying shares, such qualifying shares or (iii)
the shares of capital stock of any Foreign Subsidiary with total assets of less
than $500,000; (b)(i) the debt securities listed opposite the name of the
Pledgor on Schedule II hereto, (ii) any debt securities in the future issued to
any Pledgor (other than Azimuth) and (iii) the promissory notes and any other
instruments evidencing such debt securities (the "PLEDGED DEBT SECURITIES"); (c)
all other property that may be delivered to and held by the Collateral Agent
pursuant to the terms hereof; (d) subject to Section 5, all payments of
principal or interest, dividends, cash, instruments and other property from time
to time received, receivable or otherwise distributed, in respect of, in
exchange for or upon the conversion of the securities referred to in clauses (a)
and (b) above; (e) subject to Section 5, all rights and privileges of the
Pledgor with respect to the securities and other property referred to in clauses
(a), (b), (c) and (d) above; and (f) all proceeds of any of the foregoing (the
items referred to in clauses (a) through (f) above being collectively referred
to as the "COLLATERAL"). Upon delivery to the Collateral Agent, (a) any stock
certificates, notes or other securities now or hereafter included in the
Collateral (the "PLEDGED SECURITIES") shall be accompanied by stock powers duly
executed in blank or other instruments of transfer satisfactory to the
Collateral Agent and by such other instruments and documents as the Collateral
Agent may reasonably request and (b) all other property comprising part of the
Collateral shall be accompanied by proper instruments of assignment duly
executed by the applicable Pledgor and such other instruments or documents as
the Collateral Agent may reasonably request. Each delivery of Pledged Securities
shall be accompanied by a schedule describing the securities theretofore and
then being pledged hereunder, which schedule shall be attached hereto as
Schedule II and made a part hereof. Each schedule so delivered shall supersede
any prior schedules so delivered.
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent,
<PAGE>
3
its successors and assigns, for the ratable benefit of the Secured Parties,
forever; SUBJECT, HOWEVER, to the terms, covenants and conditions hereinafter
set forth.
SECTION 2. DELIVERY OF THE COLLATERAL. (a) Each Pledgor agrees promptly to
deliver or cause to be delivered to the Collateral Agent any and all Pledged
Securities, and any and all certificates or other instruments or documents
representing the Collateral.
(b) Each Pledgor (other than Azimuth) will cause any Indebtedness for
borrowed money owed to the Pledgor by any person in excess of $200,000 to be
evidenced by a duly executed promissory note that is pledged and delivered to
the Collateral Agent pursuant to the terms thereof.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Pledgor hereby
represents, warrants and covenants, as to itself and the Collateral pledged by
it hereunder, to and with the Collateral Agent that:
(a) the Pledged Stock represents that percentage as set forth on
Schedule II of the issued and outstanding shares of each class of the
capital stock of the issuer with respect thereto;
(b) except for the security interest granted hereunder, the Pledgor
(i) is and will at all times continue to be the direct owner, beneficially
and of record, of the Pledged Securities indicated on Schedule II, (ii)
holds the same free and clear of all Liens, (iii) will make no assignment,
pledge, hypothecation or transfer of, or create or permit to exist any
security interest in or other Lien on, the Collateral, other than pursuant
hereto, and (iv) subject to Section 5, will cause any and all Collateral,
whether for value paid by the Pledgor or otherwise, to be forthwith
deposited with the Collateral Agent and pledged or assigned hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other
than the Lien created by this Agreement), however arising, of all persons
whomsoever;
(d) no consent of any other person (including stockholders or
creditors of any Pledgor) and no consent or approval of any Governmental
Authority or any securities exchange was or is necessary to the validity
of the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of this
Agreement, when the Pledged Securities, certificates or other documents
representing or evidencing the Collateral are delivered to the Collateral
Agent in accordance with this Agreement, the Collateral Agent will obtain
a valid and perfected first lien upon and security interest in such
Pledged Securities as security for the payment and performance of the
Obligations;
(f) the pledge effected hereby is effective to vest in the
Collateral Agent, on behalf of the Secured Parties, the rights of the
Collateral Agent in the Collateral as set forth herein;
(g) all of the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable;
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4
(h) all information set forth herein relating to the Pledged Stock
is accurate and complete in all material respects as of the date hereof;
and
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation T, U or X of the Federal Reserve Board or any
successor thereto as of the date hereof.
SECTION 4. COVENANTS OF AZIMUTH. Azimuth covenants that it will not:
(a) engage in any business activities or have any assets or
liabilities, other than (i) its ownership of the Equity Interests of the
Borrower and liabilities incidental thereto, including its liabilities
pursuant to this Agreement, (ii) its obligations pursuant to (A) the
Seller Purchase Money Note, (B) the Investor Notes, (C) the Holdings
Convertible Notes and (D) additional indebtedness to any Permitted
Investor and (iii) its employment of members of its management.
(b) make (or give any notice in respect thereof) any voluntary or
optional payment or prepayment on or redemption or acquisition for value
of, or any prepayment or redemption as a result of any asset sale, change
of control or similar event of, any Senior Subordinated Notes, the Seller
Purchase Money Note or the Investor Notes.
SECTION 5. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. The Collateral
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) upon the occurrence and during the continuance of a Default
or an Event of Default, to hold the Pledged Securities in its own name as
pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the
Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent. If
a Default or an Event of Default shall have occurred and be continuing, each
Pledgor will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. The Collateral Agent shall at all times
have the right to exchange the certificates representing Pledged Securities for
certificates of smaller or larger denominations for any purpose consistent with
this Agreement.
SECTION 6. VOTING RIGHTS; DIVIDENDS AND INTEREST, ETC. (a) Unless and
until an Event of Default shall have occurred and be continuing and the
Collateral Agent shall have given the Pledgors notice of its intent to exercise
its rights under this Agreement:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers inuring to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms
of this Agreement, the Credit Agreement and the other Loan Documents;
PROVIDED, HOWEVER, that such Pledgor will not be entitled to exercise any
such right if the result thereof could materially and adversely affect the
rights inuring to a holder of the Pledged Securities or the rights and
remedies of any of the Secured Parties under this Agreement or the Credit
Agreement or any other Loan Document or the ability of the Secured Parties
to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling
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5
such Pledgor to exercise the voting and/or consensual rights and powers it
is entitled to exercise pursuant to subparagraph (i) above and to receive
the dividends it is entitled to receive pursuant to subparagraph (iii)
below.
(iii) Each Pledgor shall be entitled to receive and retain any and
all cash dividends, interest and principal paid on the Pledged Securities
to the extent and only to the extent that such cash dividends, interest
and principal are permitted by, and otherwise paid in accordance with, the
terms and conditions of the Credit Agreement, the other Loan Documents and
applicable laws. All noncash dividends, interest and principal, and all
dividends, interest and principal paid or payable in cash or otherwise in
connection with a partial or total liquidation or dissolution, return of
capital, capital surplus or paid-in surplus, and all other distributions
(other than distributions referred to in the preceding sentence) made on
or in respect of the Pledged Securities, whether paid or payable in cash
or otherwise, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of the issuer of any
Pledged Securities or received in exchange for Pledged Securities or any
part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such
issuer may be a party or otherwise, shall be and become part of the
Collateral, and, if received by any Pledgor, shall not be commingled by
such Pledgor with any of its other funds or property but shall be held
separate and apart therefrom, shall be held in trust for the benefit of
the Collateral Agent and shall be forthwith delivered to the Collateral
Agent in the same form as so received (with any necessary endorsement).
This paragraph (iii) shall not apply to dividends among the Subsidiaries
only of property subject to a perfected security interest under the
Security Agreement; PROVIDED THAT the Borrower notifies the Collateral
Agent in writing, specifically referring to this Section 6, at the time of
such dividend and takes any actions the Collateral Agent reasonably
specifies to ensure the continuance of its perfected security interest in
such property under the Security Agreement.
(b) Upon the occurrence and during the continuance of an Event of Default
and the giving by the Collateral Agent of a notice of its intention to exercise
its remedies, all rights of any Pledgor to dividends, interest or principal that
such Pledgor is authorized to receive pursuant to paragraph (a)(iii) above shall
cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to receive
and retain such dividends, interest or principal. All dividends, interest or
principal received by the Pledgor contrary to the provisions of this Section 6
shall be held in trust for the benefit of the Collateral Agent, shall be
segregated from other property or funds of such Pledgor and shall be forthwith
delivered to the Collateral Agent upon demand in the same form as so received
(with any necessary endorsement). Any and all money and other property paid over
to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and shall be applied in accordance with the provisions of Section 8. After all
Events of Default have been cured or waived, the Collateral Agent shall, within
five Business Days after all such Events of Default have been cured or waived,
repay to each Pledgor all cash dividends, interest or principal (without
interest), that such Pledgor would otherwise be permitted to retain pursuant to
the terms of paragraph (a)(iii) above and which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default
and the giving by the Collateral Agent of a notice of its intention to exercise
its remedies, all rights
<PAGE>
6
of any Pledgor to exercise the voting and consensual rights and powers it is
entitled to exercise pursuant to paragraph (a)(i) of this Section 6, and the
obligations of the Collateral Agent under paragraph (a)(ii) of this Section 6,
shall cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to exercise
such voting and consensual rights and powers, PROVIDED THAT, unless otherwise
directed by the Required Lenders, the Collateral Agent shall have the right from
time to time following and during the continuance of an Event of Default to
permit the Pledgors to exercise such rights. After all Events of Default have
been cured or waived, such Pledgor will have the right to exercise the voting
and consensual rights and powers that it would otherwise be entitled to exercise
pursuant to the terms of paragraph (a)(i) above.
SECTION 7. REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell the Collateral, or any part thereof,
at public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Collateral Agent
shall deem appropriate. The Collateral Agent shall be authorized at any such
sale (if it deems it advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and, to the extent permitted by applicable
law, the Pledgors hereby waive all rights of redemption, stay, valuation and
appraisal any Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions or successor versions of such Uniform
Commercial Code) of the Collateral Agent's intention to make any sale of such
Pledgor's Collateral. Such notice, in the case of a public sale, shall state the
time and place for such sale and, in the case of a sale at a broker's board or
on a securities exchange, shall state the board or exchange at which such sale
is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice of such sale.
At any such sale, the Collateral, or portion thereof, to be sold may be sold in
one lot as an entirety or in separate parcels, as the Collateral Agent may (in
its sole and absolute discretion) determine. The Collateral Agent shall not be
obligated to make any sale of any Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of such Collateral shall have been
given. The Collateral Agent may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid in full by the purchaser or
purchasers thereof, but the Collateral Agent shall not incur any liability in
case any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be sold
again upon like notice. At any public (or, to the extent permitted by applicable
law, private) sale made pursuant to this
<PAGE>
7
Section 7, any Secured Party may bid for or purchase, free from any right of
redemption, stay or appraisal on the part of any Pledgor (all said rights being
also hereby waived and released), the Collateral or any part thereof offered for
sale and may make payment on account thereof by using any claim then due and
payable to it from such Pledgor as a credit against the purchase price, and it
may, upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to such Pledgor therefor. For purposes
hereof, (a) a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof, (b) the Collateral Agent shall be
free to carry out such sale pursuant to such agreement and (c) such Pledgor
shall not be entitled to the return of the Collateral or any portion thereof
subject thereto, notwithstanding the fact that after the Collateral Agent shall
have entered into such an agreement all Events of Default shall have been
remedied and the Obligations paid in full. As an alternative to exercising the
power of sale herein conferred upon it, the Collateral Agent may proceed by a
suit or suits at law or in equity to foreclose upon the Collateral and to sell
the Collateral or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver. Any sale pursuant to the provisions of this Section 6
shall be deemed to conform to the commercially reasonable standards as provided
in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of
New York or its equivalent in other jurisdictions.
SECTION 8. APPLICATION OF PROCEEDS OF SALE. The proceeds of any sale,
foreclosure or other realization upon any Collateral pursuant to Section 7, as
well as any Collateral consisting of cash, shall be applied by the Collateral
Agent as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such sale,
foreclosure or realization or otherwise in connection with this Agreement,
any other Loan Document or any of the Obligations, including all court
costs and the reasonable fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Collateral Agent
hereunder or under any other Loan Document on behalf of any Pledgor and
any other costs or expenses incurred in connection with the exercise of
any right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court
of competent jurisdiction may otherwise direct.
The Administrative Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
<PAGE>
8
SECTION 9. REIMBURSEMENT OF COLLATERAL AGENT. (a) Each Pledgor agrees to
pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, other charges and disbursements of its
counsel and of any experts or agents, that the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collec tion from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
the Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or
observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Pledgor agrees to indemnify the Collateral Agent and the
Indemnitees (as defined in Section 9.05 of the Credit Agreement) against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, PROVIDED that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of any Indemnitee.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 9 shall remain operative and in full force and effect regardless
of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document or any investigation made by or on
behalf of the Collateral Agent or any other Secured Party. All amounts due under
this Section 9 shall be payable on written demand therefor and shall bear
interest at the rate specified in Section 2.06 of the Credit Agreement.
SECTION 10. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each Pledgor
hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for
the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may deem necessary
or advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Collateral Agent shall have the right, upon the occurrence and during the
continuance of an Event of Default, with full power of substitution either in
the Collateral Agent's name or in the name of such Pledgor, to ask for, demand,
sue for, collect, receive and give acquittance for any and all moneys due or to
become due under and by virtue of any Collateral, to endorse checks, drafts,
orders and other instruments for the payment of money payable to the Pledgor
representing any interest or dividend or other distribution payable in respect
of the Collateral or any part thereof or on account thereof and to give full
discharge for the same, to settle, compromise, prosecute or defend any action,
claim or proceeding with respect thereto, and to sell, assign, endorse, pledge,
transfer and to make any agreement respecting, or otherwise deal with, the same;
PROVIDED, HOWEVER, that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent
<PAGE>
9
to make any commitment or to make any inquiry as to the nature or sufficiency of
any payment received by the Collateral Agent, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby. The Collateral Agent and the other Secured Parties shall be accountable
only for amounts actually received as a result of the exercise of the powers
granted to them herein, and neither they nor their officers, directors,
employees or agents shall be responsible to any Pledgor for any act or failure
to act hereunder, except for their own gross negligence or wilful misconduct.
The Collateral Agent agrees not to exercise the power of attorney provided for
in this Section 10 unless a Default or Event of Default shall have occurred and
be continuing.
SECTION 11. WAIVERS; AMENDMENT. (a) No failure or delay of the Collateral
Agent in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Collateral Agent hereunder and of
the other Secured Parties under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provisions of this Agreement or consent to any departure by any
Pledgor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Pledgor in any case shall entitle such Pledgor to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Collateral Agent and the Pledgor or Pledgors with respect to which such waiver,
amendment or modification is to apply, subject to any consent required in
accordance with Section 9.08 of the Credit Agreement.
SECTION 12. SECURITIES ACT, ETC. In view of the position of the Pledgors
in relation to the Pledged Securities, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "FEDERAL SECURITIES LAWS") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Securities, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Securities for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges and
agrees that in light of such restrictions and limitations, the Collateral Agent,
in its sole and absolute discretion, (a) may proceed to make such a sale whether
or not a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under the Federal Securities
Laws and (b) may approach and negotiate with a single potential
<PAGE>
10
purchaser to effect such sale. Each Pledgor acknowledges and agrees that any
such sale might result in prices and other terms less favorable to the seller
than if such sale were a public sale without such restrictions. In the event of
any such sale, the Collateral Agent shall incur no responsibility or liability
for selling all or any part of the Pledged Securities at a price that the
Collateral Agent, in its sole and absolute discretion, may in good faith deem
reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might have been realized if the sale were deferred
until after registration as aforesaid or if more than a single purchaser were
approached. The provisions of this Section 12 will apply notwithstanding the
existence of a public or private market upon which the quotations or sales
prices may exceed substantially the price at which the Collateral Agent sells.
SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent
hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 14. TERMINATION OR RELEASE. (a) This Agreement and the security
interests granted hereby shall terminate when all the Obligations (other than
wholly contingent indemnification obligations) then due and owing have been
indefeasibly paid in full and the Lenders have no further commitment to lend
under the Credit Agreement, the L/C Exposure has been reduced to zero and the
Issuing Bank has no further obligation to issue Letters of Credit under the
Credit Agreement.
(b) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under the Credit Agreement to any person that is not a Pledgor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.08(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.
(c) In connection with any termination or release pursuant to paragraph
(a) or (b), the Collateral Agent shall execute and deliver to any Pledgor, at
such Pledgor's expense, all documents that such Pledgor shall reasonably request
to evidence such termination or release. Any execution and delivery of documents
pursuant to this Section 14 shall be without recourse to or warranty by the
Collateral Agent.
SECTION 15. NOTICES. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Subsidiary Pledgor shall be given to
it in care of the Borrower.
<PAGE>
11
SECTION 16. FURTHER ASSURANCES. Each Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
SECTION 17. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Pledgor that are contained in
this Agreement shall bind and inure to the benefit of its successors and
assigns. This Agreement shall become effective as to any Pledgor when a
counterpart hereof executed on behalf of such Pledgor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral Agent, and thereafter shall be binding upon such
Pledgor and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of such Pledgor, the Collateral Agent and the
other Secured Parties, and their respective successors and assigns, except that
no Pledgor shall have the right to assign its rights hereunder or any interest
herein or in the Collateral (and any such attempted assignment shall be void),
except as expressly contemplated by this Agreement or the other Loan Documents.
If all of the capital stock of a Pledgor is sold, transferred or otherwise
disposed of to a person that is not an Affiliate of the Borrower pursuant to a
transaction permitted by Section 6.05 of the Credit Agreement, such Pledgor
shall be released from its obligations under this Agreement without further
action. This Agreement shall be construed as a separate agreement with respect
to each Pledgor and may be amended, modified, supplemented, waived or released
with respect to any Pledgor without the approval of any other Pledgor and
without affecting the obligations of any other Pledgor hereunder.
SECTION 18. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or the L/C Exposure does not equal zero and as long as
the Commitments and the L/C Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
<PAGE>
12
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute a single contract, and shall become effective
as provided in Section 18. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 21. RULES OF INTERPRETATION. The rules of interpretation specified
in Section 1.02 of the Credit Agreement shall be applicable to this Agreement.
Section headings used herein are for convenience of reference only, are not part
of this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting this Agreement.
SECTION 22. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Pledgor
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or Federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that, to the extent permitted by applicable law, all claims in respect of
any such action or proceeding may be heard and determined in such New York State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Collateral Agent or any other Secured Party may otherwise have to
bring any action or proceeding relating to this Agreement or the other Loan
Documents against any Pledgor or its properties in the courts of any
jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT
<PAGE>
13
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 24. ADDITIONAL PLEDGORS. Pursuant to Section 5.12 of the Credit
Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive
Subsidiary) that was not in existence or not a Domestic Subsidiary on the date
of the Credit Agreement is required to enter in this Agreement as a Subsidiary
Pledgor upon becoming a Domestic Subsidiary (or ceasing to be an Inactive
Subsidiary) if such Domestic Subsidiary owns or possesses property of a type
that would be considered Collateral hereunder. Upon execution and delivery by
the Collateral Agent and a Domestic Subsidiary of an instrument in the form of
Annex 1, such Domestic Subsidiary shall become a Subsidiary Pledgor hereunder
with the same force and effect as if originally named as a Subsidiary Pledgor
herein. The execution and delivery of such instrument shall not require the
consent of any Pledgor hereunder. The rights and obligations of each Pledgor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Subsidiary Pledgor as a party to this Agreement.
SECTION 25. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions, each Pledgor authorizes the Collateral Agent
to file financing statements with respect to the Collateral owned by it without
the signature of such Pledgor in such form and in such filing offices as the
Collateral Agent reasonably determines appropriate to perfect the security
interests of the Collateral Agent under this Agreement. A carbon, photographic
or other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
ANTEON CORPORATION,
by:
----------------------
Name:
Title:
ANALYSIS & TECHNOLOGY, INC.,
by:
----------------------
Name:
Title:
INTERACTIVE MEDIA CORP.,
by:
----------------------
Name:
Title:
TECHMATICS, INC.,
by:
----------------------
Name:
Title:
VECTOR DATA SYSTEMS, INC.,
by:
----------------------
Name:
Title:
<PAGE>
15
AZIMUTH TECHNOLOGIES, INC.,
by:
----------------------
Name:
Title:
<PAGE>
16
MELLON BANK, N.A., as Collateral
Agent,
by:
----------------------
Name:
Title:
<PAGE>
Schedule I to the
Pledge Agreement
SUBSIDIARY PLEDGORS
Name
- ----
Analysis & Technology, Inc.
Interactive Media Corp.
Techmatics, Inc.
Vector Data Systems, Inc.
<PAGE>
Schedule II to the
Pledge Agreement
EQUITY INTERESTS
Number of Registered Number and Class Percentage of
Issuer Certificate Owner of Shares Shares
- ------ ----------- ----- --------- ------
DEBT SECURITIES
Principal
Issuer Amount Date of Note Maturity Date
- ------ ------ ------------ -------------
<PAGE>
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of , to the PLEDGE AGREEMENT
dated as of June 23, 1999, among ANTEON CORPORATION, a
Virginia corporation (the "BORROWER"), AZIMUTH TECHNOLOGIES,
INC., a Delaware corporation ("AZIMUTH") and each subsidiary
of the Borrower listed on Schedule I hereto (each such
subsidiary individually a "SUBSIDIARY PLEDGOR" and
collectively, the "SUBSIDIARY PLEDGORS"; the Borrower, Azimuth
and Subsidiary Pledgors are referred to collectively herein as
the "PLEDGORS") and MELLON BANK, N.A., a national banking
association ("MELLON"), as collateral agent (in such capacity,
the "COLLATERAL AGENT") for the Secured Parties (as defined in
the Credit Agreement referred to below)
A. Reference is made to (a) the Credit Agreement dated as of June 23, 1999
(as amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and issuing bank,
Mellon, as Collateral Agent, swingline lender and syndication agent, and
Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee
Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise
modified from time to time, the "GUARANTEE AGREEMENT") among the Subsidiary
Pledgors and the Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Pursuant to Section 5.12 of the Credit Agreement, each Domestic Subsidiary of
the Borrower (other than any Inactive Subsidiary) that was not in existence or
not a Domestic Subsidiary on the date of the Credit Agreement is required to
enter into the Pledge Agreement as a Subsidiary Pledgor upon becoming a Domestic
Subsidiary (or ceasing to be an Inactive Subsidiary) if such Domestic Subsidiary
owns or possesses property of a type that would be considered Collateral under
the Pledge Agreement. Section 24 of the Pledge Agreement provides that such
Domestic Subsidiaries may become Subsidiary Pledgors under the Pledge Agreement
by execution and delivery of an instrument in the form of this Supplement. The
undersigned Domestic Subsidiary (the "NEW PLEDGOR") is executing this Supplement
in accordance with the requirements of the Credit Agreement to become a
Subsidiary Pledgor under the Pledge Agreement in order to induce the Lenders to
make additional Loans and the Issuing Bank to issue additional Letters of Credit
and as consideration for Loans previously made and Letters of Credit previously
issued.
Accordingly, the Collateral Agent and the New Pledgor agree as follows:
SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New
Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with
the same force and effect as if originally named therein as a Pledgor and the
New Pledgor hereby agrees (a) to all the terms and provisions of the Pledge
Agreement applicable to it as a Pledgor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date
<PAGE>
2
hereof. In furtherance of the foregoing, the New Pledgor, as security for the
payment and performance in full of the Obligations (as defined in the Pledge
Agreement), does hereby create and grant to the Collateral Agent, its successors
and assigns, for the benefit of the Secured Parties, their successors and
assigns, a security interest in and lien on all of the New Pledgor's right,
title and interest in and to the Collateral (as defined in the Pledge Agreement)
of the New Pledgor. Each reference to a "Subsidiary Pledgor" or a "Pledgor" in
the Pledge Agreement shall be deemed to include the New Pledgor. The Pledge
Agreement is hereby incorporated herein by reference.
SECTION 2. The New Pledgor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Pledgor hereby represents and warrants that set forth
on Schedule I attached hereto is a true and correct schedule of all its Pledged
Securities.
SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
The parties hereto shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 16 of the Pledge Agreement. All communications
and notices hereunder to the New Pledgor shall be given to it in care of the
Borrower.
SECTION 9. The New Pledgor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reason able fees, other charges and disbursements of counsel for
the Collateral Agent.
<PAGE>
3
IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly
executed this Supplement to the Pledge Agreement as of the day and year first
above written.
[Name of New Pledgor],
by:
--------------------------
Name:
Title:
Address:
MELLON BANK, N.A., as Collateral
Agent,
by:
--------------------------
Name:
Title:
<PAGE>
Schedule I to
Supplement No.
to the Pledge Agreement
PLEDGED SECURITIES OF THE NEW PLEDGOR
EQUITY INTERESTS
Number of Registered Number and Class Percentage of
Issuer Certificate Owner of Shares Shares
- ------ ----------- ----- --------- ------
DEBT SECURITIES
Principal
Issuer Amount Date of Note Maturity Date
- ------ ------ ------------ -------------
<PAGE>
Exhibit 10.6
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated
as of June 23, 1999, among ANTEON CORPORATION, a Virginia
corporation (the "BORROWER"), each Subsidiary of the Borrower
listed on Schedule I hereto (the "GUARANTORS") and MELLON
BANK, N.A., a national banking association, ("MELLON"), as
collateral agent (in such capacity, the "COLLATERAL AGENT")
for the Secured Parties (as defined in the Credit Agreement
referred to below).
Reference is made to (a) the Credit Agreement dated as of June 23, 1999
(as amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank,
Mellon, as Collateral Agent, swingline lender and syndication agent, and
Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee
Agreement dated as of June 23, 1999, among the Guarantors and the Collateral
Agent (the "GUARANTEE AGREEMENT"). Capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. The Guarantors have guaranteed such Loans and the other
Obligations (as defined in the Guarantee Agreement) of the Borrower under the
Credit Agreement pursuant to the Guarantee Agreement and certain Guarantors have
granted Liens on and security interests in certain of their assets to secure
such guarantees. The obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit are conditioned upon, among other things, the
execution and delivery by the Borrower and the Guarantors of an agreement in the
form hereof.
Accordingly, the Borrower, each Guarantor and the Collateral Agent agree
as follows:
SECTION 1. INDEMNITY AND SUBROGATION. In addition to all such rights of
indemnity and subrogation as the Guarantors may have under applicable law (but
subject to Section 3), the Borrower agrees that (a) in the event a payment shall
be made by any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and such Guarantor
shall be subrogated to the rights of the person to whom such payment shall have
been made to the extent of such payment and (b) in the event any assets of any
Guarantor shall be sold pursuant to any Security Document to satisfy a claim of
any Secured Party, the Borrower shall indemnify such Guarantor in an amount
equal to the greater of the book value or the fair market value of the assets so
sold.
SECTION 2. CONTRIBUTION AND SUBROGATION. Each Guarantor (a "CONTRIBUTING
GUARANTOR") agrees (subject to Section 3) that, in the event a payment shall be
made by any other Guarantor under the Guarantee Agreement or assets of any other
Guarantor shall be sold pursuant to any Security Document to satisfy a claim of
any Secured Party and such other Guarantor (the "CLAIMING GUARANTOR") shall not
have been fully indemnified by the Borrower as provided in Section 1, the
Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal
to the amount of such payment or the greater of the book value
<PAGE>
2
or the fair market value of such assets, as the case may be, in each case
multiplied by a fraction of which the numerator shall be the net worth of the
Contributing Guarantor on the date hereof and the denominator shall be the
aggregate net worth of all the Guarantors on the date hereof (or, in the case of
any Guarantor becoming a party hereto pursuant to Section 12, the date of the
Supplement hereto executed and delivered by such Guarantor). Any Contributing
Guarantor making any payment to a Claiming Guarantor pursuant to this Section 2
shall be subrogated to the rights of such Claiming Guarantor under Section 1 to
the extent of such payment.
SECTION 3. SUBORDINATION. Notwithstanding any provision of this Agreement
to the contrary, all rights of the Guarantors under Sections 1 and 2 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to the indefeasible payment in full in
cash of the Obligations. No failure on the part of the Borrower or any Guarantor
to make the payments required by Sections 1 and 2 (or any other payments
required under applicable law or otherwise) shall in any respect limit the
obligations and liabilities of any Guarantor with respect to its obligations
hereunder, and each Guarantor shall remain liable for the full amount of the
obligations of such Guarantor hereunder.
SECTION 4. TERMINATION. This Agreement shall survive and be in full force
and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash, and so long as the L/C Exposure has not been
reduced to zero or any of the Commit ments under the Credit Agreement have not
been terminated, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by any Secured Party or any Guarantor
upon the bankruptcy or reorganization of the Borrower, any Guarantor or other
wise.
SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. NO WAIVER; AMENDMENT. (a) No failure on the part of the
Collateral Agent or any Guarantor to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy by the
Collateral Agent or any Guarantor preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. None of
the Collateral Agent and the Guarantors shall be deemed to have waived any
rights here under unless such waiver shall be in writing and signed by such
parties.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Borrower, the Guarantors and the Collateral Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Credit
Agreement).
SECTION 7. NOTICES. All communications and notices hereunder shall be in
writing and given as provided in the Guarantee Agreement and addressed as
specified therein.
<PAGE>
3
SECTION 8. BINDING AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the parties that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
Neither the Borrower nor any Guarantor may assign or transfer any of its rights
or obligations hereunder (and any such attempted assignment or transfer shall be
void) without the prior written consent of the Required Lenders. Notwithstanding
the foregoing, at the time any Guarantor is released from its obligations under
the Guarantee Agreement in accordance with such Guarantee Agreement and the
Credit Agreement, such Guarantor will cease to have any rights or obligations
under this Agreement.
SECTION 9. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants and
agreements made by the Borrower and each Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement or the other Loan Documents shall be considered to have been relied
upon by the Collateral Agent, the other Secured Parties and each Guarantor and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loans or any
other fee or amount payable under the Credit Agreement or this Agreement or
under any of the other Loan Documents is outstanding and unpaid or the L/C
Exposure does not equal zero and as long as the Commitments have not been
terminated.
(b) In case any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, no party hereto
shall be required to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 10. COUNTERPARTS. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agree ment shall be effective with respect to any
Guarantor when a counterpart bearing the signature of such Guarantor shall have
been delivered to the Collateral Agent. Delivery of an executed signature page
to this Agreement by fax transmission shall be as effective as delivery of a
manually signed counterpart of this Agreement.
SECTION 11. RULES OF INTERPRETATION. The rules of interpretation specified
in Section 1.02 of the Credit Agreement shall be applicable to this Agreement.
SECTION 12. ADDITIONAL GUARANTORS. Pursuant to Section 5.12 of the Credit
Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive
Subsidiary) that was not in existence or not such a Subsidiary on the date of
the Credit Agreement is required to enter into the Guarantee Agreement as a
Guarantor upon becoming such a Subsidiary (or ceasing to be an Inactive
Subsidiary). Upon execution and delivery, after the date hereof, by the
Collateral Agent and such a Subsidiary of an instrument in the form of Annex 1
hereto, such Subsidiary shall become a Guarantor hereunder with the same force
<PAGE>
4
and effect as if originally named as a Guarantor hereunder. The execution and
delivery of any instrument adding an additional Guarantor as a party to this
Agreement shall not require the consent of any Guarantor hereunder. The rights
and obligations of each Guarantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Guarantor as a party to this
Agreement.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
ANTEON CORPORATION,
by:
-----------------------
Name:
Title:
ANALYSIS & TECHNOLOGY, INC.,
by:
-----------------------
Name:
Title:
INTERACTIVE MEDIA CORP.,
by:
-----------------------
Name:
Title:
TECHMATICS, INC.,
by:
-----------------------
Name:
Title:
VECTOR DATA SYSTEMS, INC.,
by:
-----------------------
Name:
Title:
<PAGE>
MELLON BANK, N.A., as Collateral
Agent,
by:
-----------------------
Name:
Title:
<PAGE>
SCHEDULE I
to the Indemnity Subrogation
and Contribution Agreement
GUARANTORS
Name
- ----
Analysis & Technology, Inc.
Interactive Media Corp.
Techmatics, Inc.
Vector Data Systems, Inc.
<PAGE>
Annex 1 to
the Indemnity, Subrogation and
Contribution Agreement
SUPPLEMENT NO. dated as of [ ], to the Indemnity,
Subrogation and Contribution Agreement dated as of June 23,
1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "INDEMNITY, SUBROGATION AND
CONTRIBUTION AGREEMENT"), among ANTEON CORPORATION, a Virginia
corporation (the "BORROWER") each Subsidiary of the Borrower
listed on Schedule I thereto (the "GUARANTORS"), and MELLON
BANK, N.A., an national banking association, ("MELLON"), as
collateral agent (the "COLLATERAL AGENT") for the Secured
Parties (as defined in the Credit Agreement referred to
below).
A. Reference is made to (a) the Credit Agreement dated as of June 23, 1999
(as amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank,
Mellon, as Collateral Agent, swingline lender and syndication agent, and
Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee
Agreement dated as of June 23, 1999, among the Guarantors and the Collateral
Agent (the "GUARANTEE AGREEMENT").
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Credit Agreement.
C. The Borrower and the Guarantors have entered into the Indemnity,
Subrogation and Contribution Agreement in order to induce the Lenders to make
Loans and the Issuing Bank to issue Letters of Credit. Pursuant to Section 5.12
of the Credit Agreement, each Domestic Subsidiary of the Borrower (other than
any Inactive Subsidiary) that was not in existence or not such a Subsidiary on
the date of the Credit Agreement is required to enter into the Guarantee
Agreement as a Guarantor upon becoming a Domestic Subsidiary (or ceasing to be
an Inactive Subsidiary). Section 12 of the Indemnity, Subrogation and
Contribution Agreement provides that additional Subsidiaries of the Borrower may
become Guarantors under the Indemnity, Subrogation and Contribution Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary of the Borrower (the "NEW GUARANTOR") is executing this
Supplement in accordance with the requirements of the Credit Agreement to become
a Guarantor under the Indemnity, Subrogation and Contribution Agreement in order
to induce the Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Guarantor agree as follows:
SECTION 1. In accordance with Section 12 of the Indemnity, Subrogation and
Contribution Agreement, the New Guarantor by its signature below becomes a
Guarantor under the Indemnity, Subrogation and Contribution Agreement with the
same force and effect as if originally named therein as a Guarantor and the New
Guarantor hereby agrees to all the terms and provisions of the Indemnity,
Subrogation and Contribution Agreement applicable to it as a Guarantor
thereunder. Each reference to a "Guarantor" in the Indemnity, Subrogation and
Contribution Agreement shall be deemed to include the New Guarantor. The
Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein
by reference.
<PAGE>
2
SECTION 2. The New Guarantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Guarantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by fax transmission
shall be as effective as delivery of a manually signed counterpart of this
Supplement.
SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Indemnity, Subrogation and Contribution Agreement shall not in
any way be affected or impaired. The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing
and given as provided in Section 7 of the Indemnity, Subrogation and
Contribution Agreement. All communications and notices hereunder to the New
Guarantor shall be given to it at the address set forth under its signature.
SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
<PAGE>
3
IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly
executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.
[Name Of New Guarantor],
by:
--------------------------
Name:
Title:
Address:
MELLON BANK, N.A., as Collateral Agent,
by:
--------------------------
Name:
Title:
<PAGE>
SCHEDULE I
to Supplement No.___ to the Indemnity
Subrogation and Contribution Agreement
GUARANTORS
Name
- ----
<PAGE>
Exhibit 10.7
SUBSIDIARY GUARANTEE AGREEMENT dated as of June 23,
1999, among each of the subsidiaries listed on Schedule I
hereto (each such subsidiary individually, a "GUARANTOR" and
collectively, the "GUARANTORS") of ANTEON CORPORATION, a
Virginia corporation (the "BORROWER"), and MELLON BANK, N.A.,
a national banking association ("MELLON"), as collateral agent
(the "COLLATERAL AGENT") for the Secured Parties (as defined
in the Credit Agreement referred to below).
Reference is made to the Credit Agreement dated as of June 23, 1999 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank,
Mellon, as Collateral Agent, swingline lender and syndication agent, and
Deutsche Bank A.G., as documentation agent. Capitalized terms used herein and
not defined herein shall have the meanings assigned to such terms in the Credit
Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. Each of the Guarantors is a Subsidiary of the Borrower and
acknowledges that it will derive substantial benefit from the making of the
Loans by the Lenders, and the issuance of the Letters of Credit by the Issuing
Bank. The obligations of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit are conditioned upon, among other things, the execution
and delivery by the Guarantors of a Guarantee Agreement in the form hereof. As
consideration therefor and in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit, the Guarantors are willing to execute
this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. GUARANTEE. Each Guarantor unconditionally guarantees, jointly
with the other Guarantors and severally, as a primary obligor and not merely as
a surety, (a) the due and punctual payment of (i) the principal of and premium,
if any, and interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding) on the Loans, when and as due,
whether at maturity, by acceleration, upon one or more dates set for prepayment
or otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral, and (iii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Borrower to the Secured Parties under this
Agreement, the Credit Agreement and the other Loan Documents, (b) the due and
punctual performance of all covenants, agreements, obligations and liabilities
of the Borrower under or pursuant to this Agreement, the Credit Agreement and
the other Loan Documents, (c) the due and punctual payment and performance of
all the covenants, agreements, obligations and liabilities of each Loan
<PAGE>
2
Party under or pursuant to this Agreement and the other Loan Documents, (d)
unless otherwise agreed upon in writing by the applicable Lender party thereto,
the due and punctual payment and performance of all obligations of the Borrower,
monetary or otherwise, under each Hedging Agreement entered into with (i)
Mellon, pursuant to a Master Agreement for Swaps dated May 6, 1998, between the
Borrower and Mellon and (ii) any counterparty that was a Lender (or an Affiliate
of a Lender) at the time such Hedging Agreement was entered into and (e) the due
and punctual payment and performance of all obligations of any Loan Party in
respect of (i) overdrafts and related liabilities incurred in the ordinary
course of business owed to Mellon or any of its Affiliates and arising from
treasury, depository and cash management services or in connection with any
automated clearing house transfers of funds and (ii) indebtedness to Mellon in
connection with purchase cards issued by Mellon in an aggregate amount not to
exceed $500,000 (all the monetary and other obligations referred to in the
preceding lettered clauses of this paragraph being referred to collectively as
the "OBLIGATIONS").
SECTION 2. OBLIGATIONS NOT WAIVED. To the fullest extent permitted by
applicable law, each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. To the fullest
extent permitted by applicable law, the obligations of each Guarantor hereunder
shall not be affected by (a) the failure of the Collateral Agent or any other
Secured Party to assert any claim or demand or to enforce or exercise any right
or remedy against the Borrower or any other Guarantor under the provisions of
the Credit Agreement, any other Loan Document or otherwise, (b) any rescission,
waiver, amendment or modification of, or any release from any of the terms or
provisions of this Agreement, any other Loan Document, any Guarantee or any
other agreement, including with respect to any other Guarantor under this
Agreement or (c) the failure to perfect any security interest in, or the release
of, any of the security held by or on behalf of the Collateral Agent or any
other Secured Party.
SECTION 3. SECURITY. Each of the Guarantors authorizes the Collateral
Agent to (a) take and hold security for the payment of this Guarantee and the
Obligations and exchange, enforce, waive and release any such security, (b)
apply such security and direct the order or manner of sale thereof as it in its
sole discretion may determine and (c) release or substitute any one or more
endorsees, other guarantors or other obligors.
SECTION 4. GUARANTEE OF PAYMENT. Each Guarantor further agrees that its
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other person.
SECTION 5. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE. The obligations of
each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense (other than a defense of payment) or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of each Guarantor hereunder
shall not be discharged or impaired or otherwise affected by the failure of the
Collateral Agent or any
<PAGE>
3
other Secured Party to assert any claim or demand or to enforce any remedy under
the Credit Agreement, any other Loan Document or any other agreement, by any
waiver or modification of any provision of any thereof, by any default, failure
or delay, wilful or otherwise, in the performance of the Obligations, or by any
other act or omission that may or might in any manner or to any extent vary the
risk of any Guarantor or that would otherwise operate as a discharge of each
Guarantor as a matter of law or equity (other than the indefeasible payment in
full in cash of all the Obligations).
SECTION 6. DEFENSES OF BORROWER WAIVED. To the fullest extent permitted by
applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower or the unenforceability of the Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than the final and indefeasible payment in full
in cash of the Obligations. The Collateral Agent and the other Secured Parties
may, at their election, foreclose on any security held by one or more of them by
one or more judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with the Borrower or any other
guarantor or exercise any other right or remedy available to them against the
Borrower or any other guarantor, without affecting or impairing in any way the
liability of any Guarantor hereunder except to the extent the Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to applicable law,
each of the Guarantors waives any defense arising out of any such election even
though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Guarantor against the Borrower or any other Guarantor or guarantor, as the
case may be, or any security.
SECTION 7. AGREEMENT TO PAY; SUBORDINATION. In furtherance of the
foregoing and not in limitation of any other right that the Collateral Agent or
any other Secured Party has at law or in equity against any Guarantor by virtue
hereof, upon the failure of the Borrower or any other Loan Party to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will forthwith pay, or cause to be paid, to the Collateral Agent
or such other Secured Party as designated thereby in cash the amount of such
unpaid Obligations. Upon payment by any Guarantor of any sums to the Collateral
Agent or any Secured Party as provided above, all rights of such Guarantor
against the Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Obligations. In addition, any indebtedness of the
Borrower now or hereafter held by any Guarantor is hereby subordinated in right
of payment to the prior payment in full of the Obligations. If any amount shall
erroneously be paid to any Guarantor on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of the Borrower, such amount shall be held in trust for the benefit
of the Secured Parties and shall forthwith be paid to the Collateral Agent to be
credited against the payment of the Obligations, whether matured or unmatured,
in accordance with the terms of the Loan Documents.
SECTION 8. INFORMATION. Each of the Guarantors assumes all responsibility
for being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks that such
Guarantor assumes and incurs hereunder,
<PAGE>
4
and agrees that none of the Collateral Agent or the other Secured Parties will
have any duty to advise any of the Guarantors of information known to it or any
of them regarding such circumstances or risks.
SECTION 9. REPRESENTATIONS AND WARRANTIES. Each of the Guarantors
represents and warrants as to itself that all representations and warranties
relating to it contained in the Credit Agreement are true and correct.
SECTION 10. TERMINATION. The Guarantees made hereunder (a) shall terminate
when all the Obligations (other than wholly contingent indemnification
obligations) then due and owing have been indefeasibly paid in full and the
Lenders have no further commitment to lend under the Credit Agreement, the L/C
Exposure has been reduced to zero and the Issuing Bank has no further obligation
to issue Letters of Credit under the Credit Agreement and (b) shall continue to
be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any Obligation is rescinded or must otherwise be restored
by any Secured Party or any Guarantor upon the bankruptcy or reorganization of
the Borrower, any Guarantor or otherwise.
SECTION 11. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Guarantors that are contained in
this Agreement shall bind and inure to the benefit of each party hereto and
their respective successors and assigns. This Agreement shall become effective
as to any Guarantor when a counterpart hereof executed on behalf of such
Guarantor shall have been delivered to the Collateral Agent, and a counterpart
hereof shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Guarantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Guarantor shall have the right
to assign its rights or obligations hereunder or any interest herein (and any
such attempted assignment shall be void). If all of the capital stock of a
Guarantor is sold, transferred or otherwise disposed of pursuant to a
transaction permitted by Section 6.05 of the Credit Agreement, such Guarantor
shall be released from its obligations under this Agreement without further
action. This Agreement shall be construed as a separate agreement with respect
to each Guarantor and may be amended, modified, supplemented, waived or released
with respect to any Guarantor without the approval of any other Guarantor and
without affecting the obligations of any other Guarantor hereunder.
SECTION 12. WAIVERS; AMENDMENT. (a) No failure or delay of the Collateral
Agent in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Collateral Agent hereunder and of
the other Secured Parties under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or consent to any departure by any
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or
<PAGE>
5
demand on any Guarantor in any case shall entitle such Guarantor to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantors with respect to which such waiver, amendment or modification relates
and the Collateral Agent, with the prior written consent of the Required Lenders
(except as otherwise provided in the Credit Agreement).
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. NOTICES. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to each Guarantor shall be given to it in
care of the Borrower.
SECTION 15. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants,
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or the L/C Exposure does not equal zero and as long as
the Commitments and the L/C Commitment have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 16. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 11. Delivery of an executed signature page to this Agreement by fax
transmission shall be as effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 17. RULES OF INTERPRETATION. The rules of interpretation specified
in Section 1.02 of the Credit Agreement shall be applicable to this Agreement.
SECTION 18. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the
<PAGE>
6
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Collateral Agent or
any other Secured Party may otherwise have to bring any action or proceeding
relating to this Agreement or the other Loan Documents against any Guarantor or
its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 14. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.
SECTION 20. ADDITIONAL GUARANTORS. Pursuant to Section 5.12 of the Credit
Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive
Subsidiary) that was not in existence on the date of the Credit Agreement is
required to enter into this Agreement as a Guarantor upon becoming a Subsidiary
(or ceasing to be an Inactive Subsidiary). Upon execution and delivery after the
date hereof by the Collateral Agent and such Domestic Subsidiary of an
instrument in the form of Annex 1, such Domestic Subsidiary shall become a
Guarantor hereunder with the same force and effect as if originally named as a
Guarantor herein. The execution and delivery of any instrument adding an
additional Guarantor as a party to this Agreement shall not require
<PAGE>
7
the consent of any other Guarantor hereunder. The rights and obligations of each
Guarantor hereunder shall remain in full force and effect notwithstanding the
addition of any new Guarantor as a party to this Agreement.
SECTION 21. RIGHT OF SETOFF. If an Event of Default shall have occurred
and be continuing, each Secured Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other Indebtedness at any time owing by such Secured Party to
or for the credit or the account of any Guarantor against any or all the
obligations of such Guarantor now or hereafter existing under this Agreement and
the other Loan Documents held by such Secured Party, irrespective of whether or
not such Secured Party shall have made any demand under this Agreement or any
other Loan Document and although such obligations may be unmatured. The rights
of each Secured Party under this Section 21 are in addition to other rights and
remedies (including other rights of setoff) which such Secured Party may have.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
ANALYSIS & TECHNOLOGY, INC.,
by:
----------------------------
Name:
Title:
INTERACTIVE MEDIA CORP.,
by:
----------------------------
Name:
Title:
TECHMATICS, INC.,
by:
----------------------------
Name:
Title:
VECTOR DATA SYSTEMS, INC.,
by:
----------------------------
Name:
Title:
<PAGE>
9
MELLON BANK, N.A., as Collateral
Agent,
by:
----------------------------
Name:
Title:
<PAGE>
Schedule I to the
Guarantee Agreement
Guarantor
---------
Analysis & Technology, Inc.
Interactive Media Corp.
Techmatics, Inc.
Vector Data Systems, Inc.
<PAGE>
Annex 1 to the
Subsidiary Guarantee Agreement
SUPPLEMENT NO. dated as of , to the Subsidiary
Guarantee Agreement dated as of June 23, 1999, among each of
the subsidiaries listed on Schedule I thereto (each such
subsidiary individually, a "GUARANTOR" and collectively, the
"GUARANTORS") of ANTEON CORPORATION, a Virginia corporation
(the "BORROWER"), and MELLON BANK, N.A., a national banking
association, as collateral agent (the "COLLATERAL AGENT") for
the Secured Parties (as defined in the Credit Agreement
referred to below).
A. Reference is made to the Credit Agreement dated as of June 23, 1999 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank,
Mellon, as Collateral Agent, swingline lender and syndication agent, and
Deutsche Bank AG, New York Branch, as documentation agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Guarantee Agreement and the
Credit Agreement.
C. The Guarantors have entered into the Guarantee Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Pursuant to Section 5.12 of the Credit Agreement, each Domestic
Subsidiary of the Borrower (other than any Inactive Subsidiary) that was not in
existence or not a Domestic Subsidiary on the date of the Credit Agreement is
required to enter into the Guarantee Agreement as a Guarantor upon becoming a
Domestic Subsidiary (or ceasing to be an Inactive Subsidiary). Section 20 of the
Guarantee Agreement provides that additional Domestic Subsidiaries of the
Borrower may become Guarantors under the Guarantee Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned
Domestic Subsidiary of the Borrower (the "NEW GUARANTOR") is executing this
Supplement in accordance with the requirements of the Credit Agreement to become
a Guarantor under the Guarantee Agreement in order to induce the Lenders to make
additional Loans and the Issuing Bank to issue additional Letters of Credit and
as consideration for Loans previously made and Letters of Credit previously
issued.
Accordingly, the Collateral Agent and the New Guarantor agree as follows:
SECTION 1. In accordance with Section 20 of the Guarantee Agreement, the
New Guarantor by its signature below becomes a Guarantor under the Guarantee
Agreement with the same force and effect as if originally named therein as a
Guarantor and the New Guarantor hereby (a) agrees to all the terms and
provisions of the Guarantee Agreement applicable to it as a Guarantor thereunder
and (b) represents and warrants that the representations and warranties made by
it as a Guarantor thereunder are true and correct on and as of the date hereof.
Each reference to a "Guarantor" in the Guarantee Agreement shall be deemed to
include the New Guarantor. The Guarantee Agreement is hereby incorporated herein
by reference.
SECTION 2. The New Guarantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
<PAGE>
2
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Guarantor and the Collateral
Agent. Delivery of an executed signature page to this Supplement by fax
transmission shall be as effective as delivery of a manually executed
counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Guarantee
Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Guarantee Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision hereof in a particular jurisdiction shall not in and of itself affect
the validity of such provision in any other jurisdiction). The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7. All communications and notices hereunder shall be in writing
and given as provided in Section 14 of the Guarantee Agreement. All
communications and notices hereunder to the New Guarantor shall be given to it
at the address set forth under its signature below, with a copy to the Borrower.
SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for
its out-of-pocket expenses in connection with this Supplement, including the
fees, disbursements and other charges of counsel for the Collateral Agent.
<PAGE>
3
IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly
executed this Supplement to the Guarantee Agreement as of the day and year first
above written.
[Name Of New Guarantor],
by:
----------------------------
Name:
Title:
Address:
MELLON BANK, N.A., as Collateral
Agent,
by:
----------------------------
Name:
Title:
<PAGE>
Exhibit 10.8
SECURITY AGREEMENT dated as of June 23, 1999, among
ANTEON CORPORATION, a Virginia corporation (the "BORROWER"),
each subsidiary of the Borrower listed on Schedule I hereto
(each such subsidiary individually a "SUBSIDIARY GUARANTOR"
and collectively, the "SUBSIDIARY GUARANTORS"; the Subsidiary
Guarantors and the Borrower are referred to collectively
herein as the "GRANTORS") and MELLON BANK, N.A., a national
banking association ("MELLON"), as collateral agent (in such
capacity, the "COLLATERAL AGENT") for the Secured Parties (as
defined herein).
Reference is made to (a) the Credit Agreement dated as of June 23, 1999
(as amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, a bank organized under the laws of
Switzerland, acting through its New York branch ("CSFB"), as administrative
agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and as
issuing bank (in such capacity, the "ISSUING BANK"), Mellon, as Collateral
Agent, swingline lender and syndication agent, and Deutsche Bank AG, New York
Branch, as documentation agent, and (b) the Subsidiary Guarantee Agreement dated
as of June 23, 1999 (as amended, supplemented or otherwise modified from time to
time, the "GUARANTEE AGREEMENT"), among the Subsidiary Guarantors and the
Collateral Agent.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower, in
each case pursuant to, and upon the terms and subject to the conditions
specified in, the Credit Agreement. Each of the Subsidiary Guarantors has agreed
to guarantee, among other things, all the obligations of the Borrower under the
Credit Agreement. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned upon, among other
things, the execution and delivery by the Borrower of an agreement in the form
hereof to secure, and the execution and delivery by the Subsidiary Guarantors of
an agreement in the form hereof to secure their guarantees under the Guarantee
Agreement of, (a) the due and punctual payment by the Borrower of (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral, and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
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2
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Borrower to the Secured Parties
under this Agreement, the Credit Agreement and the other Loan Documents, (b) the
due and punctual performance of all covenants, agreements, obligations and
liabilities of the Borrower under or pursuant to this Agreement, the Credit
Agreement and the other Loan Documents, (c) the due and punctual payment and
performance of all the covenants, agreements, obligations and liabilities of
each Loan Party under or pursuant to this Agreement and the other Loan
Documents, (d) unless otherwise agreed upon in writing by the applicable Lender
party thereto, the due and punctual payment and performance of all obligations
of the Borrower, monetary or otherwise, under each Hedging Agreement entered
into with (i) Mellon, pursuant to a Master Agreement for Swaps dated May 6,
1998, between the Borrower and Mellon and (ii) any counterparty that was a
Lender (or an affiliate of a Lender) at the time such Hedging Agreement was
entered into and (e) the due and punctual payment and performance of all
obligations of any Loan Party in respect of (i) overdrafts and related
liabilities incurred in the ordinary course of business owed to Mellon or any of
its Affiliates and arising from treasury, depository and cash management
services or in connection with any automated clearing house transfers of funds
and (ii) indebtedness to Mellon in connection with purchase cards issued by
Mellon in an aggregate amount not to exceed $500,000 (all the monetary and other
obligations referred to in the preceding lettered clauses of this paragraph
being referred to collectively as the "OBLIGATIONS").
Accordingly, the Grantors and the Collateral Agent, on behalf of itself
and each Secured Party (and each of their respective successors or assigns),
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITION OF TERMS USED HEREIN. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall have
the meanings set forth in the Credit Agreement, and all references to the
Uniform Commercial Code shall mean the Uniform Commercial Code in effect in the
State of New York as of the date hereof.
SECTION 1.02. DEFINITION OF CERTAIN TERMS USED HEREIN. As used herein, the
following terms shall have the following meanings:
"ACCOUNT DEBTOR" shall mean any person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account.
"ACCOUNTS" shall mean any and all right, title and interest of any Grantor
to payment for goods and services sold or leased, including any such right
evidenced by chattel paper,
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3
whether due or to become due, whether or not it has been earned by performance,
and whether now or hereafter acquired or arising in the future, including
accounts receivable from Affiliates of the Grantors.
"ACCOUNTS RECEIVABLE" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
"CHATTEL PAPER" shall mean (a) a writing or writings which evidence both a
monetary obligation and a security interest in or a lease of specific Equipment
and (b) all other property now or hereafter constituting "chattel paper" under
the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions, in each case that are now or hereafter owned
by Grantor.
"COLLATERAL" shall mean all (a) Accounts Receivable, (b) Chattel Paper,
(c) Contract Rights, (d) Documents, (e) Equipment, (f) General Intangibles, (g)
Inventory, (h) cash and cash accounts (including the Concentration Account and
the Collection Deposit Accounts), (i) Investment Property and (j) Proceeds;
PROVIDED that the Collateral shall not include (i) except as set forth in
Section 9-318 of the Uniform Commercial Code, any agreement or License which
cannot be pledged or assigned according to its terms or the pledge or assignment
of which requires the consent of any third party unless such third party has
consented thereto, (ii) Investment Property evidenced by a certificate pledged
under the Pledge Agreement, (iii) property subject to a Lien permitted by
Section 6.02(h) of the Credit Agreement and (iv) property acquired after the
Closing Date and subject to Liens permitted by Section 6.02 (l) of the Credit
Agreement to the extent that the terms of the Indebtedness secured by such Liens
do not permit the creation of additional Liens thereon.
"COLLECTION DEPOSIT ACCOUNT" shall mean a lockbox account of a Grantor
maintained for the benefit of the Secured Parties with the Collateral Agent or
with a Sub-Agent pursuant to a Lockbox and Depository Agreement.
"COMMODITY ACCOUNT" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried for a Commodity Customer.
"COMMODITY CONTRACT" shall mean a commodity futures contract, an option on
a commodity futures contract, a commodity option or any other contract that, in
each case, is (a) traded on or subject to the rules of a board of trade that has
been designated as a contract market for such a contract pursuant to the Federal
commodities laws or (b) traded on a foreign commodity board of trade, exchange
or market, and is carried on the books of a Commodity Intermediary for a
Commodity Customer.
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4
"COMMODITY CUSTOMER" shall mean a person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"COMMODITY INTERMEDIARY" shall mean (a) a person who is registered as a
futures commission merchant under the federal commodities laws or (b) a person
who in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been designated as a contract market
pursuant to Federal commodities laws.
"CONCENTRATION ACCOUNT" shall mean the cash collateral account established
at the office of Mellon, at Mellon Bank, N.A., Philadelphia, PA in the name of
the Collateral Agent, ABA No. 031-000-037, Account No.2-410-074.
"CONTRACT RIGHT" shall mean any right of a Grantor to bill and receive
payment under any and all contracts, agreements or purchase orders, whether now
existing or owned or hereafter arising or acquired.
"COPYRIGHT LICENSE" shall mean any written agreement, now or hereafter in
effect, granting any right to any Grantor under any Copyright now or hereafter
owned by any third party, and all rights of such Grantor under any such
agreement.
"COPYRIGHTS" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office (or
any successor office or any similar office in any other country), including
those listed on Schedule II.
"CREDIT AGREEMENT" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"DOCUMENTS" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
"ENTITLEMENT HOLDER" shall mean a person identified in the records of a
Securities Intermediary as the person having a Security Entitlement against the
Securities Intermediary. If a person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such person is the
Entitlement Holder.
"EQUIPMENT" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term Equipment shall include Fixtures.
<PAGE>
5
"FINANCIAL ASSET" shall mean (a) a Security, (b) an obligation of a person
or a share, participation or other interest in a person or in property or an
enterprise of a person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another person in a Securities Account if the
Securities Intermediary has expressly agreed with the other person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term Financial Asset shall mean
either the interest itself or the means by which a person's claim to it is
evidenced, including a certificated or uncertificated Security, a certificate
representing a Security or a Security Entitlement.
"FIXTURES" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"GENERAL INTANGIBLES" shall mean all choses in action and causes of action
and all other assignable intangible personal property of any Grantor of every
kind and nature (other than Accounts Receivable) now owned or hereafter acquired
by any Grantor, including all rights and interests in partnerships, limited
partnerships, limited liability companies and other unincorporated entities,
corporate or other business records, indemnification claims, Contract Rights
(including rights under leases, whether entered into as lessor or lessee,
Hedging Agreements and other agreements), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts
Receivable.
"INTELLECTUAL PROPERTY" shall mean all intellectual and similar property
of any Grantor of every kind and nature now owned or hereafter acquired by any
Grantor, including inventions, designs, Patents, Copyrights, Licenses,
Trademarks, trade secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information, software and
databases and all embodiments or fixations thereof and related documentation,
registrations and franchises, and all additions, improvements and accessions to,
and books and records describing or used in connection with, any of the
foregoing.
"INVENTORY" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"INVESTMENT PROPERTY" shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and
<PAGE>
6
Commodity Accounts of any Grantor, whether now owned or hereafter acquired by
any Grantor.
"LICENSE" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements in
existence on the date hereof and listed on Schedule III and those license
agreements entered into after the date hereof, which by their terms or
applicable law prohibit assignment or a grant of a security interest by such
Grantor as licensee thereunder).
"LOCKBOX AND DEPOSITORY AGREEMENT" shall mean a Lockbox and Depository
Agreement substantially in the form of Annex 1 hereto among a Grantor, the
Collateral Agent and a Sub-Agent with such changes thereto, if any, as may be
approved by the Collateral Agent.
"LOCKBOX SYSTEM" shall have the meaning assigned to such term in Section
5.01.
"OBLIGATIONS" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"PATENT LICENSE" shall mean any written agreement, now or hereafter in
effect, granting to any Grantor any right to make, use or sell any invention on
which a Patent, now or hereafter owned by any third party, is in existence, and
all rights of any Grantor under any such agreement.
"PATENTS" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office (or any successor or any similar offices in any other
country), including those listed on Schedule IV, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof,
and the inventions disclosed or claimed therein, including the right to make,
use and/or sell the inventions disclosed or claimed therein.
"PERFECTION CERTIFICATE" shall mean a certificate substantially in the
form of Annex 2 hereto, completed and supplemented with the schedules and
attachments contemplated thereby, and duly executed by a Financial Officer and
the chief legal officer of the Borrower.
"PROCEEDS" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage
<PAGE>
7
or other involuntary conversion of whatever nature of any asset or property
which constitutes Collateral, and shall include (a) all cash and negotiable
instruments received by or held on behalf of the Collateral Agent pursuant to
the Lockbox System , (b) any claim of any Grantor against any third party for
(and the right to sue and recover for and the rights to damages or profits due
or accrued arising out of or in connection with) (i) past, present or future
infringement of any Patent now or hereafter owned by any Grantor, or licensed
under a Patent License, (ii) past, present or future infringement or dilution of
any Trademark now or hereafter owned by any Grantor or licensed under a
Trademark License or injury to the goodwill associated with or symbolized by any
Trademark now or hereafter owned by any Grantor, (iii) past, present or future
breach of any License and (iv) past, present or future infringement of any
Copyright now or hereafter owned by any Grantor or licensed under a Copyright
License and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"SECURED PARTIES" shall mean (a) the Lenders, (b) the Administrative
Agent, (c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to
a Hedging Agreement entered into with the Borrower if such counterparty was a
Lender (or an Affiliate of a Lender) at the time the Hedging Agreement was
entered into, (f) the beneficiaries of each indemnification obligation
undertaken by any Grantor under any Loan Document and (g) the successors and
assigns of each of the foregoing.
"SECURITIES" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or traded on securities exchanges or securities markets or (ii) are a
medium for investment and by their terms expressly provide that they are a
security governed by Article 8 of the Uniform Commercial Code (other than as
expressly excluded by Section 8-103(c), (e) and (f) of such Article).
"SECURITIES ACCOUNT" shall mean an account to which a Financial Asset is
or may be credited in accordance with an agreement under which the person
maintaining the account undertakes to treat the person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"SECURITY ENTITLEMENTS" shall mean the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
"SECURITY INTEREST" shall have the meaning assigned to such term in
Section 2.01.
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8
"SECURITIES INTERMEDIARY" shall mean (a) a clearing corporation or (b) a
person, including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity.
"SUB-AGENT" shall mean a financial institution which shall have delivered
to the Collateral Agent an executed Lockbox and Depository Agreement.
"TRADEMARK LICENSE" shall mean any written agreement, now or hereafter in
effect, granting to any Grantor any right to use any Trademark now or hereafter
owned by any third party, and all rights of any Grantor under any such
agreement.
"TRADEMARKS" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule V, (b) all goodwill associated therewith or
symbolized thereby and (c) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
SECTION 1.03. RULES OF INTERPRETATION. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
SECURITY INTEREST
SECTION 2.01. SECURITY INTEREST. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates
and transfers to the Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, and hereby grants to the Collateral
Agent, its successors and assigns, for the ratable benefit of the Secured
Parties, a security interest in, all of such Grantor's right, title and interest
in, to and under the Collateral (the "SECURITY INTEREST"). Without limiting the
foregoing, the Collateral Agent is hereby authorized to file one or more
financing statements (including fixture filings), continuation statements,
filings with the United States Patent and Trademark Office or United States
Copyright Office (or any successor office or any similar office in any other
country) or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any
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9
Grantor, and naming any Grantor or the Grantors as debtors and the Collateral
Agent as secured party.
SECTION 2.02. NO ASSUMPTION OF LIABILITY. The Security Interest is granted
as security only and shall not subject the Collateral Agent or any other Secured
Party to, or in any way alter or modify, any obligation or liability of any
Grantor with respect to or arising out of the Collateral.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Grantors jointly and severally represent and warrant to the Collateral
Agent and the Secured Parties that:
SECTION 3.01. TITLE AND AUTHORITY. Each Grantor has good and valid rights
in and title to the Collateral with respect to which it has purported to grant a
Security Interest hereunder and has full power and authority to grant to the
Collateral Agent the Security Interest in such Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other person other than
any consent or approval which has been obtained.
SECTION 3.02. FILINGS. (a) The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
have been delivered to the Collateral Agent for filing in each governmental,
municipal or other office specified in Schedule 6 to the Perfection Certificate,
which are all the filings, recordings and registrations (other than filings
required to be made in the United States Patent and Trademark Office and the
United States Copyright Office in order to perfect the Security Interest in
Collateral consisting of United States Patents, Trademarks and Copyrights) that
are necessary to publish notice of and protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral in
which the Security Interest may be perfected by filing, recording or
registration in the United States (or any political subdivision thereof) and its
territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements.
(b) Each Grantor represents and warrants that fully executed security
agreements in the form hereof and containing a description of all Collateral
consisting of Intellectual
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10
Property with respect to United States Patents and United States registered
Trademarks (and Trademarks for which United States registration applications are
pending) and United Sates registered Copyrights have been delivered to the
Collateral Agent for recording by the United States Patent and Trademark Office
and the United States Copyright Office pursuant to 35 U.S.C. ss. 261, 15 U.S.C.
ss. 1060 or 17 U.S.C. ss. 205 and the regulations thereunder, as applicable, and
otherwise as may be required pursuant to the laws of any other necessary
jurisdiction, to protect the validity of and to establish a legal, valid and
perfected security interest in favor of the Collateral Agent (for the ratable
benefit of the Secured Parties) in respect of all Collateral consisting of
Patents, Trademarks and Copyrights in which a security interest may be perfected
by filing, recording or registration in the United States (or any political
subdivision thereof) and its territories and possessions, or in any other
necessary jurisdiction, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary (other than
such actions as are necessary to perfect the Security Interest with respect to
any Collateral consisting of Patents, Trademarks and Copyrights (or registration
or application for registration thereof) acquired or developed after the date
hereof).
SECTION 3.03. VALIDITY OF SECURITY INTEREST. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and possessions pursuant
to the Uniform Commercial Code or other applicable law in such jurisdictions and
(c) a security interest that shall be perfected in all Collateral in which a
security interest may be perfected upon the receipt and recording of this
Agreement with the United States Patent and Trademark Office and the United
States Copyright Office, as applicable. The Security Interest is and shall be
prior to any other Lien on any of the Collateral, other than Liens expressly
permitted to be prior to the Security Interest pursuant to Section 6.02 of the
Credit Agreement.
SECTION 3.04. ABSENCE OF OTHER LIENS. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. No Grantor has filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office,
(c) any notice under the Assignment of Claims Act or (d) any assignment in which
any Grantor assigns any Collateral or any security agreement or similar
instrument covering any Collateral with any foreign governmental, municipal or
other office, which financing statement or analogous document, assignment,
security agreement or similar instrument is
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11
still in effect, except, in each case, for Liens expressly permitted pursuant to
Section 6.02 of the Credit Agreement.
ARTICLE IV
COVENANTS
SECTION 4.01. CHANGE OF NAME; LOCATION OF COLLATERAL; RECORDS; PLACE OF
BUSINESS. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. Each Grantor agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected first priority security interest in all the Collateral. Each
Grantor agrees promptly to notify the Collateral Agent if any material portion
of the Collateral owned or held by such Grantor is damaged or destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral, and, at such time or times as the Collateral Agent
may reasonably request, promptly to prepare and deliver to the Collateral Agent
a duly certified schedule or schedules in form and detail satisfactory to the
Collateral Agent showing the identity, amount and location of any and all
Collateral.
SECTION 4.02. PROTECTION OF SECURITY. Each Grantor shall, at its own cost
and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.03. FURTHER ASSURANCES. Each Grantor agrees, at its own expense,
to execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Collateral Agent may
from time to time reasonably request to better assure, preserve, protect and
perfect the Security Interest and the
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12
rights and remedies created hereby, including the payment of any fees and taxes
required in connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any financing statements
(including fixture filings) or other documents in connection herewith or
therewith. If any amount payable to any Grantor under or in connection with any
of the Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument in excess of $200,000 shall be immediately
pledged and delivered to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent, PROVIDED that promissory notes or
instruments evidencing advances permitted under Section 6.04(d) of the Credit
Agreement will not be required to be so pledged.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V hereto or
adding additional schedules hereto to specifically identify any asset or item
that may constitute Copyrights, Licenses, Patents or Trademarks; PROVIDED,
HOWEVER, that any Grantor shall have the right, exercisable within 10 days after
it has been notified by the Collateral Agent of the specific identification of
such Collateral, to advise the Collateral Agent in writing of any inaccuracy of
the representations and warranties made by such Grantor hereunder with respect
to such Collateral. Each Grantor agrees that it will use its best efforts to
take such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct in all material respects with
respect to such Collateral within 30 days after the date it has been notified by
the Collateral Agent of the specific identification of such Collateral.
SECTION 4.04. INSPECTION AND VERIFICATION. The Collateral Agent and such
persons as the Collateral Agent may reasonably designate shall have the right,
at the Grantors' own cost and expense, to inspect the Collateral, all records
related thereto (and to make extracts and copies from such records) and the
premises upon which any of the Collateral is located, to discuss the Grantors'
affairs with the officers of the Grantors and their independent accountants and
to verify under reasonable procedures, in accordance with Section 5.11 of the
Credit Agreement, the validity, amount, quality, quantity, value, condition and
status of, or any other matter relating to, the Collateral, including, in the
case of Accounts or Collateral in the possession of any third person, by
contacting Account Debtors or the third person possessing such Collateral for
the purpose of making such a verification. The Collateral Agent shall have the
absolute right to share any information it gains from such inspection or
verification with any Secured Party (it being understood that any such
information shall be deemed to be "Information" subject to the provisions of
Section 9.16 of the Credit Agreement).
SECTION 4.05. TAXES; ENCUMBRANCES. At its option, the Collateral Agent may
discharge past due taxes, assessments, charges, fees, Liens, security interests
or other encumbrances at any time levied or placed on the Collateral and not
permitted pursuant to Section 6.02 of the Credit Agreement, and may pay for the
maintenance and preservation of
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13
the Collateral to the extent any Grantor fails to do so as required by the
Credit Agreement or this Agreement, and each Grantor jointly and severally
agrees to reimburse the Collateral Agent on demand for any payment made or any
expense incurred by the Collateral Agent pursuant to the foregoing
authorization; PROVIDED, HOWEVER, that nothing in this Section 4.06 shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Loan Documents.
SECTION 4.06. ASSIGNMENT OF SECURITY INTEREST. If at any time any Grantor
shall take a security interest in any property of an Account Debtor or any other
person to secure payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
Account Debtor or other person granting the security interest.
SECTION 4.07. CONTINUING OBLIGATIONS OF THE GRANTORS. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
SECTION 4.08. USE AND DISPOSITION OF COLLATERAL. None of the Grantors
shall make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral or permit
any notice to be filed under the Assignment of Claims Act except for any such
notice in favor of the Collateral Agent, except as expressly permitted by
Section 6.02 of the Credit Agreement. None of the Grantors shall make or permit
to be made any transfer of the Collateral and each Grantor shall remain at all
times in possession of the Collateral owned by it, except that (a) Inventory may
be sold in the ordinary course of business and (b) unless and until the
Collateral Agent shall notify the Grantors that an Event of Default shall have
occurred and be continuing and that during the continuance thereof the Grantors
shall not sell, convey, lease, assign, transfer or otherwise dispose of any
Collateral (which notice may be given by telephone if promptly confirmed in
writing), the Grantors may use and dispose of the Collateral in any lawful
manner not inconsistent with the provisions of this Agreement, the Credit
Agreement or any other Loan Document. Without limiting the generality of the
foregoing, each Grantor agrees that it shall not permit any Inventory in excess
of $500,000 to be in the possession or control of any warehouseman, bailee,
agent or processor at any time unless such warehouseman, bailee, agent or
processor shall have been notified of the Security Interest and shall have
agreed in writing to hold the Inventory subject to the Security Interest and the
instructions
<PAGE>
14
of the Collateral Agent and to waive and release any Lien held by it with
respect to such Inventory, whether arising by operation of law or otherwise.
SECTION 4.09. LIMITATION ON MODIFICATION OF ACCOUNTS. None of the Grantors
will, without the Collateral Agent's prior written consent, grant any extension
of the time of payment of any of the Accounts Receivable, compromise, compound
or settle the same for less than the full amount thereof, release, wholly or
partly, any person liable for the payment thereof or allow any credit or
discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged.
SECTION 4.10. INSURANCE. The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory and Equipment in accordance with Section 5.02 of the Credit
Agreement. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Collateral Agent
deems advisable. All sums disbursed by the Collateral Agent in connection with
this Section 4.11, including reasonable attorneys' fees, court costs, expenses
and other charges relating thereto, shall be payable, upon demand, by the
Grantors to the Collateral Agent and shall be additional Obligations secured
hereby.
SECTION 4.11. LEGEND. Each Grantor shall legend, in form and manner
reasonably satisfactory to the Collateral Agent, its Accounts Receivable and its
books, records and documents evidencing or pertaining thereto with an
appropriate reference to the fact that such Accounts Receivable have been
assigned to the Collateral Agent for the benefit of the Secured Parties and that
the Collateral Agent has a security interest therein.
SECTION 4.12. COVENANTS REGARDING PATENT, TRADEMARK AND COPYRIGHT
COLLATERAL. (a) Each Grantor agrees that it will not, nor will it permit any of
its licensees to, do any act, or omit to do any act, whereby any Patent which is
material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue
<PAGE>
15
to mark any products covered by a Patent with the relevant patent number as
necessary and sufficient to establish and preserve its maximum rights under
applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each work
covered by a material Copyright, continue to publish, reproduce, display, adopt
and distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it knows
or has reason to know that any Patent, Trademark or Copyright material to the
conduct of its business may become abandoned, lost or dedicated to the public,
or of any adverse determination or development (including the institution of, or
any such determination or development in, any proceeding in the United States
Patent and Trademark Office, United States Copyright Office or any court or
similar office of any country) regarding such Grantor's ownership of any Patent,
Trademark or Copyright, its right to register the same, or to keep and maintain
the same.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, unless it promptly informs
the Collateral Agent, and, upon request of the Collateral Agent, executes and
delivers any and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that it deems appropriate
under the circumstances and are consistent with the practice in any proceeding
before the United States Patent and Trademark Office, United States Copyright
Office or any office or agency in any political subdivision of the United States
or in any other country or any political subdivision
<PAGE>
16
thereof, to maintain and pursue each material application relating to the
Patents, Trademarks and/or Copyrights (and to obtain the relevant grant or
registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of any Grantor's
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancelation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral. Such Grantor may discontinue or settle any such suit or other action
if the Grantor deems such discontinuance or settlement to be appropriate in its
reasonable business judgment.
(h) Upon and during the continuance of an Event of Default, each Grantor
shall, at the request of the Collateral Agent, use its best efforts to obtain
all requisite consents or approvals by the licensor of each Copyright License,
Patent License or Trademark License to effect the assignment of all of such
Grantor's right, title and interest thereunder to the Collateral Agent or its
designee.
ARTICLE V
COLLECTIONS
SECTION 5.01. LOCKBOX SYSTEM. (a) The Grantors have established in the
name of the Collateral Agent, and subject to the control of the Collateral Agent
pursuant to the Lockbox and Depository Agreements, for the ratable benefit of
the Collateral Agent and the other Secured Parties, a system of lockboxes and
related deposit accounts (the "LOCKBOX SYSTEM") with one or more financial
institutions that are reasonably satisfactory to the Collateral Agent into which
the Proceeds of all Accounts Receivable and Inventory shall be deposited and
forwarded to the Collateral Agent in accordance with the Lockbox and Depository
Agreements.
(b) All Proceeds of Inventory and Accounts Receivable that have been
received on any Business Day through the Lockbox System will be transferred into
the Concentration Account on such Business Day to the extent required by the
applicable Lockbox and Depository Agreement. All Proceeds stemming from the sale
of a substantial portion of the Collateral (other than Proceeds of Accounts)
that have been received by a Grantor on any
<PAGE>
17
Business Day will be transferred into the Concentration Account within one
Business Day. All Proceeds received on any Business Day by the Collateral Agent
pursuant to Section 5.02 will be transferred into the Concentration Account on
such Business Day.
(c) The Concentration Account is, and shall remain, under the sole
dominion and control of the Collateral Agent. Each Grantor acknowledges and
agrees that (i) such Grantor has no right of withdrawal from the Concentration
Account, (ii) the funds on deposit in the Concentration Account shall continue
to be collateral security for all of the Obligations and (iii) upon the
occurrence and during the continuance of an Event of Default, at the Collateral
Agent's election, the funds on deposit in the Concentration Account shall be
applied as provided in Section 6.02.
(d) Effective upon notice to the Grantors from the Collateral Agent after
the occurrence and during the continuance of an Event of Default (which notice
may be given by telephone if promptly confirmed in writing), the Concentration
Account will, without any further action on the part of any Grantor, the
Collateral Agent or any Sub-Agent, convert into a closed lockbox account under
the exclusive dominion and control of the Collateral Agent in which funds are
held subject to the rights of the Collateral Agent hereunder. Each Grantor
irrevocably authorizes the Collateral Agent to notify each Sub-Agent (i) of the
occurrence of an Event of Default and (ii) of the matters referred to in this
paragraph (d). Following the occurrence of an Event of Default, the Collateral
Agent may instruct each Sub-Agent to transfer immediately all funds held in each
deposit account to the Concentration Account.
SECTION 5.02. COLLECTIONS. (a) Each Grantor agrees (i) to notify and
direct promptly each Account Debtor and every other person obligated to make
payments on Accounts Receivable or in respect of any Inventory to make all such
payments directly to the Lockbox System established in accordance with Section
5.01, (ii) to use all reasonable efforts to cause each Account Debtor and every
other person identified in clause (i) above to make all payments with respect to
Accounts Receivable and Inventory directly to such Lockbox System and (iii) to
deposit all payments received by it on account of Accounts Receivable and
Inventory, whether in the form of cash, checks, notes, drafts, bills of
exchange, money orders or otherwise, in the Lockbox System in precisely the form
in which received (but with any endorsements of such Grantor necessary for
deposit or collection) within one Business Day of receipt thereof, and until
they are so deposited such payments shall be held in trust by such Grantor for
and as the property of the Collateral Agent.
(b) Without the prior written consent of the Collateral Agent, no Grantor
shall, in a manner adverse to the Lenders, change the general instructions given
to Account Debtors in respect of payment on Accounts to be deposited in the
Lockbox System. Until the Collateral Agent shall have advised the Grantors to
the contrary, each Grantor shall, and the Collateral Agent hereby authorizes
each Grantor to, enforce and collect all amounts owing on the Inventory and
Accounts Receivable, for the benefit and on behalf of the Collateral Agent and
the other Secured Parties; PROVIDED, HOWEVER, that such privilege may at the
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18
option of the Collateral Agent be terminated upon the occurrence and during the
continuance of any Event of Default.
SECTION 5.03. POWER OF ATTORNEY. Each Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as such Grantor's true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall have
the right, with power of substitution for each Grantor and in each Grantor's
name or otherwise, for the use and benefit of the Collateral Agent and the
Secured Parties, upon the occurrence and during the continuance of an Event of
Default (a) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences of payment relating
to the Collateral or any part thereof; (b) to demand, collect, receive payment
of, give receipt for and give discharges and releases of all or any of the
Collateral; (c) to sign the name of any Grantor on any invoice or bill of lading
relating to any of the Collateral; (d) to send verifications of Accounts
Receivable to any Account Debtor; (e) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral; (f) to settle, compromise,
compound, adjust or defend any actions, suits or proceedings relating to all or
any of the Collateral; (g) to notify, or to require any Grantor to notify,
Account Debtors to make payment directly to the Collateral Agent; and (h) to
use, sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do all other acts and
things necessary to carry out the purposes of this Agreement, as fully and
completely as though the Collateral Agent were the absolute owner of the
Collateral for all purposes; PROVIDED, HOWEVER, that nothing herein contained
shall be construed as requiring or obligating the Collateral Agent or any
Secured Party to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become due
in respect thereof or any property covered thereby, and no action taken or
omitted to be taken by the Collateral Agent or any Secured Party with respect to
the Collateral or any part thereof shall give rise to any defense, counterclaim
or offset in favor of any Grantor or to any claim or action against the
Collateral Agent or any Secured Party. It is understood and agreed that the
appointment of the Collateral Agent as the agent and attorney-in-fact of the
Grantors for the purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event relieve any
Grantor of any of its obligations hereunder or under any other Loan Document
with respect to the Collateral or any part thereof or impose any obligation on
the Collateral Agent or any Secured Party to proceed in any particular manner
with respect to the Collateral or any part thereof, or in any way limit the
exercise by the Collateral Agent or any Secured Party of any other or further
right which it may have on the date of this Agreement or hereafter, whether
hereunder, under any other Loan Document, by law or otherwise.
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19
ARTICLE VI
REMEDIES
SECTION 6.01. REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Com mercial Code or other applicable law.
Without limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor hereby waives
(to the extent permitted by law) all rights of redemption, stay and appraisal
which such Grantor now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice
(which each Grantor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of Collateral. Such notice, in the case of a public sale, shall
state the time and place for such sale and, in the case of a sale at a broker's
board or on a securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or portion thereof,
will first be offered for sale at such board or exchange. Any such public sale
shall be held at such
<PAGE>
20
time or times within ordinary business hours and at such place or places as the
Collateral Agent may fix and state in the notice (if any) of such sale. At any
such sale, the Collateral, or portion thereof, to be sold may be sold in one lot
as an entirety or in separate parcels, as the Collateral Agent may (in its sole
and absolute discretion) determine. The Collateral Agent shall not be obligated
to make any sale of any Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of such Collateral shall have been
given. The Collateral Agent may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
SECTION 6.02. APPLICATION OF PROCEEDS. The Collateral Agent shall apply
the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement, any of
the Obligations, including all court costs and the reasonable fees and
expenses of its agents and legal counsel, the repayment of all advances
made by the Collateral Agent hereunder or under any
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21
other Loan Document on behalf of any Grantor and any other reasonable
costs or expenses incurred in connection with the exercise of any right or
remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court
of competent jurisdiction may otherwise direct.
The Administrative Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located, and including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Collateral Agent
shall be exercised, at the option of the Collateral Agent, upon the occurrence
and during the continuation of an Event of Default; PROVIDED that any license,
sub-license or other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.
<PAGE>
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01. NOTICES. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and notices
hereunder to any Subsidiary Guarantor shall be given to it at its address or fax
number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02. SECURITY INTEREST ABSOLUTE. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument,
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Obligations or this Agreement.
SECTION 7.03. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. BINDING EFFECT; SEVERAL AGREEMENT. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the Collateral Agent and the other Secured Parties and their respective
successors and assigns, except that no Grantor shall have the right to assign or
transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void) except as
expressly contemplated by this Agreement or the Credit Agreement. This Agreement
shall be construed as a separate agreement with respect to each Grantor and may
be amended, modified, supplemented,
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23
waived or released with respect to any Grantor without the approval of any other
Grantor and without affecting the obligations of any other Grantor hereunder.
SECTION 7.05. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Grantor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.
SECTION 7.06. COLLATERAL AGENT'S FEES AND EXPENSES; INDEMNIFICATION. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement (including the customary fees and charges of
the Collateral Agent for any audits conducted by it or on its behalf with
respect to the Accounts Receivable or Inventory), (ii) the custody or
preservation of, or the sale of, collection from or other realization upon any
of the Collateral, (iii) the exercise, enforcement or protection of any of the
rights of the Collateral Agent hereunder or (iv) the failure of any Grantor to
perform or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; PROVIDED
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of any
Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document, or any investigation made by or on
behalf of the Collateral Agent or any Secured Party. All amounts due under this
Section 7.06 shall be payable on written demand therefor and shall bear interest
at the rate specified in Section 2.06 of the Credit Agreement.
<PAGE>
24
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.08. WAIVERS; AMENDMENT. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Collateral Agent, the Issuing Bank, the Administrative Agent and the
Lenders under the other Loan Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or any other Loan Document or consent to any
departure by any Grantor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Grantor in any case shall entitle such
Grantor or any other Grantor to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Collateral Agent and the Grantor or Grantors with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.08 of the Credit Agreement.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
SECTION 7.10. SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired thereby
(it being understood that the invalidity of a
<PAGE>
25
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 7.04), and
shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12. HEADINGS. Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.13. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Collateral Agent, the Administrative Agent, the Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Loan Documents against any Grantor or its properties in the courts of
any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affected the right of any party to this Agreement to serve
process in any other manner permitted by law.
<PAGE>
26
SECTION 7.14. TERMINATION. This Agreement and the Security Interest shall
terminate when all the Obligations (other than wholly contingent indemnification
obligations) then due and owing have been indefeasibly paid in full, the Lenders
have no further commitment to lend, the L/C Exposure has been reduced to zero
and the Issuing Bank has no further commitment to issue Letters of Credit under
the Credit Agreement, at which time the Collateral Agent shall execute and
deliver to the Grantors, at the Grantors' expense, all Uniform Commercial Code
termination statements and similar documents which the Grantors shall reasonably
request to evidence such termination. Any execution and delivery of termination
statements or documents pursuant to this Section 7.14 shall be without recourse
to or warranty by the Collateral Agent. A Subsidiary Guarantor shall
automatically be released from its obligations hereunder and the Security
Interest in the Collateral of such Subsidiary Guarantor shall be automatically
released in the event that all the capital stock of such Subsidiary Guarantor
shall be sold, transferred or otherwise disposed of to a person that is not an
Affiliate of the Borrower in accordance with the terms of the Credit Agreement;
PROVIDED that the Required Lenders shall have consented to such sale, transfer
or other disposition (to the extent required by the Credit Agreement) and the
terms of such consent did not provide otherwise.
SECTION 7.15. ADDITIONAL GRANTORS. Upon execution and delivery by the
Collateral Agent and a Subsidiary of an instrument in the form of Annex 3
hereto, such Subsidiary shall become a Grantor hereunder with the same force and
effect as if originally named as a Grantor herein. The execution and delivery of
any such instrument shall not require the consent of any Grantor hereunder. The
rights and obligations of each Grantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Grantor as a party to this
Agreement.
<PAGE>
27
<PAGE>
28
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
ANTEON CORPORATION,
by:
-----------------------------
Name:
Title:
ANALYSIS & TECHNOLOGY,
INC.,
by:
-----------------------------
Name:
Title:
INTERACTIVE MEDIA CORP.,
by:
-----------------------------
Name:
Title:
TECHMATICS, INC.,
by:
-----------------------------
Name:
Title:
VECTOR DATA SYSTEMS, INC.,
<PAGE>
29
by:
-----------------------------
Name:
Title:
<PAGE>
30
MELLON BANK, N.A., as Collateral
Agent,
by:
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE I
SUBSIDIARY GUARANTORS
Analysis & Technology, Inc.
Interactive Media Corp.
Techmatics, Inc.
Vector Data Systems, Inc.
<PAGE>
SCHEDULE II
COPYRIGHTS
<PAGE>
SCHEDULE III
LICENSES
<PAGE>
SCHEDULE IV
PATENTS
<PAGE>
SCHEDULE V
TRADEMARKS
<PAGE>
Annex 1 to the
Security Agreement
LOCKBOX AND DEPOSITORY AGREEMENT dated as of
[ ], among [Name of Grantor], a [ ] corporation (the "GRANTOR"),
MELLON BANK, N.A., a national banking association ("MELLON"), as
collateral agent (in such capacity, the "COLLATERAL AGENT") for the
Secured Parties (such term, and each other capitalized term used but
not defined herein, having the meaning given it in the Security
Agreement referred to below) and [ ], a [ ] banking
corporation (the "SUB-AGENT").
A. The Grantor and the Collateral Agent are parties to a Security
Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise
modified from time to time, the "SECURITY AGREEMENT"). Pursuant to the terms of
the Security Agreement, the Grantor has granted to the Collateral Agent, for the
ratable benefit of the Secured Parties, a security interest in its Accounts
Receivable and other Collateral (including Inventory, cash, cash accounts and
Proceeds) to secure the payment and performance of the Obligations and has
irrevocably appointed the Collateral Agent as its agent to collect amounts due
in respect of Accounts Receivable and Inventory.
B. The Sub-Agent has agreed to act as collection sub-agent of the
Collateral Agent to receive and forward payments with respect to the Accounts
Receivable and Inventory on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Collateral Agent hereby appoints the Sub-Agent as its collection
sub-agent under the Security Agreement and authorizes the Sub-Agent, on the
terms and subject to the conditions set forth herein, to receive payments in
respect of Collateral consisting of Accounts Receivable and Inventory.
2. The Sub-Agent has established and shall maintain deposit account number
[ ] (including all subaccounts thereof) for the benefit of the Collateral Agent
(such account being called the "COLLECTION DEPOSIT ACCOUNT"). The Collection
Deposit Account shall be designated with the title "Mellon Bank, N.A., as
Collateral Agent under the Anteon Corporation Security Agreement dated as of
June 23, 1999" (or a similar title). [Subject to the Sub-Agent's Terms for
Remittance Banking (Lockbox) Services attached hereto as Exhibit A, to the
extent that the terms thereof relate to procedures or fees and to the extent not
inconsistent with the terms hereof,] all payments received by the Sub-Agent in
Lockbox Number [ ] and [ ] or any replacements in respect thereof (the
"LOCKBOXES") shall be promptly deposited in the Collection Deposit Account and
shall not be commingled with other funds. All funds at any time on deposit in
the Collection Deposit Account shall be held by the Sub-Agent for application in
accordance with the terms of this
<PAGE>
2
Agreement. The Sub-Agent agrees to give the Collateral Agent prompt notice if
the Collection Deposit Account shall become subject to any writ, judgment,
warrant of attachment, execution or similar process. As security for the payment
and performance of the Obligations, the Grantor hereby confirms and pledges,
assigns and transfers to the Collateral Agent, and hereby creates and grants to
the Collateral Agent, a security interest in the Collection Deposit Account, all
property and assets held therein and all Proceeds thereof.
3. The Collection Deposit Account shall be under the sole dominion and
control of the Collateral Agent, who shall possess all right, title and interest
in all of the items from time to time in the Collection Deposit Account and
their Proceeds. The Sub-Agent shall be the Collateral Agent's agent for the
purpose of holding and collecting such items and their Proceeds. Neither the
Grantor nor any person or entity claiming by, through or under the Grantor shall
have any right, title or interest in, or control over the use of, or any right
to withdraw any amount from, the Collection Deposit Account, except that the
Collateral Agent shall have the right to withdraw amounts from the Collection
Deposit Account. The Sub-Agent shall be entitled to rely on, and shall act in
accordance with, all instructions given to it by the Collateral Agent with
respect to the Collection Deposit Account. The Collateral Agent shall have the
sole power to agree with the Sub-Agent as to specifications for Lockbox
services.
4. On a daily basis, the Sub-Agent shall (subject to the Sub-Agent's right
to request that the Collateral Agent furnish, in form satisfactory to the
Sub-Agent, signature cards and/or other appropriate documentation) promptly
transmit or deliver to the Collateral Agent at the office specified in paragraph
12 hereof (or such other office as the Collateral Agent shall specify) (a) all
funds, if any, then on deposit in, or otherwise to the credit of, the Collection
Deposit Account (PROVIDED that funds on deposit that are subject to collection
may be transmitted promptly upon availability for withdrawal), (b) all checks,
drafts and other instruments for the payment of money received in the Lockboxes
and in the possession of the Sub-Agent, without depositing such checks, drafts
or other instruments in the Collection Deposit Account or any other account and
(c) any checks, drafts and other instruments for the payment of money received
in the Lockboxes by the Sub-Agent after such notice, in whatever form received,
PROVIDED that the Sub-Agent may retain a reasonable reserve in a separate
deposit account with the Sub-Agent in respect of unpaid fees and amounts which
may be subject to collection.
5. The Sub-Agent is hereby instructed and authorized to transfer by wire
transfer or Automated Clearing House ("ACH") from the Collection Deposit Account
all funds that are from time to time deposited or otherwise credited to such
account (after such funds become available to the Sub-Agent, either through the
Federal Reserve System or other clearing mechanism used by the Sub-Agent's
branch and to the extent such funds exceed $[1,000]), to such account as the
Collateral Agent may from time to time direct, PROVIDED that, unless the
Collateral Agent otherwise instructs, no such transfer shall be required if such
transfer
<PAGE>
3
would result in the transfer of an amount less than $[1,000]. Unless otherwise
directed by the Collateral Agent, such funds shall be transferred on each
business day by wire transfer or ACH and shall be identified as follows:
Mellon Bank, N.A.
ABA Number 031-000-037
For Credit to Mellon Bank, N.A.,
Philadelphia, PA
Account Number 2-410-074
Re: Anteon Cash Collateral
Account
These transfer instructions and authorizations may not be amended, altered
or revoked by the Grantor without the prior written consent of the Collateral
Agent. The Collateral Agent, however, shall have the right to amend or revoke
these transfer instructions and authorizations at any time without the consent
of the Grantor.
6. The Sub-Agent shall furnish the Collateral Agent with monthly
statements setting forth the amounts deposited in the Collection Deposit Account
and all transfers and withdrawals therefrom, and shall furnish such other
information at such times as shall be reasonably requested by the Collateral
Agent.
7. The fees for the services of the Sub-Agent shall be mutually agreed
upon between the Grantor and the Sub-Agent and shall be the obligation of the
Grantor; PROVIDED, HOWEVER, that, notwithstanding the terms of any agreement
under which the Collection Deposit Account shall have been established with the
Sub-Agent, the Grantor and the Sub-Agent agree not to terminate such Collection
Deposit Account for any reason (including the failure of the Grantor to pay such
fees) for so long as this Agreement shall remain in effect (it being understood
that the foregoing shall not be construed to prohibit the resignation of the
SubAgent in accordance with paragraph 9 below). Neither the Collateral Agent nor
the Secured Parties shall have any liability for the payment of any such fees.
The Sub-Agent may perform any of its duties hereunder by or through its agents,
officers or employees.
8. The Sub-Agent hereby represents and warrants that (a) it is a banking
corporation duly organized, validly existing and in good standing under the laws
of [] and has full corporate power and authority under such laws to execute,
deliver and perform its obligations under this Agreement and (b) the execution,
delivery and performance of this Agreement by the Sub-Agent have been duly and
effectively authorized by all necessary corporate action and this Agreement has
been duly executed and delivered by the Sub-Agent and constitutes a valid and
binding obligation of the Sub-Agent enforceable in accordance with its terms.
<PAGE>
4
9. The Sub-Agent may resign at any time as Sub-Agent hereunder by delivery
to the Collateral Agent of written notice of resignation not less than thirty
days prior to the effective date of such resignation. The Sub-Agent may be
removed by the Collateral Agent at any time, with or without cause, by written,
fax or telephonic notice (which, in the case of telephonic notice, shall be
promptly confirmed in writing or by fax) of removal delivered to the Sub-Agent.
Upon receipt of such notice of removal, or delivery of such notice of
resignation, the Sub-Agent shall (subject to the Sub-Agent's right to request
that the Collateral Agent furnish, in form satisfactory to the Sub-Agent,
signature cards and/or other appropriate documentation), promptly transmit or
deliver to the Collateral Agent at the office specified in paragraph 12 (or such
other office as the Collateral Agent shall specify) (a) all funds, if any, then
on deposit in, or otherwise to the credit of, the Collection Deposit Account
(PROVIDED that funds on deposit that are subject to collection may be
transmitted promptly upon availability for withdrawal), (b) all checks, drafts
and other instruments for the payment of money received in the Lockboxes and in
the possession of the Sub-Agent, without depositing such checks, drafts or other
instruments in the Collection Deposit Account or any other account and (c) any
checks, drafts and other instruments for the payment of money received in the
Lockboxes by the Sub-Agent after such notice, in what ever form received.
10. The Grantor consents to the appointment of the Sub-Agent and agrees
that the Sub-Agent shall incur no liability to the Grantor as a result of any
action taken pursuant to an instruction given by the Collateral Agent in
accordance with the provisions of this Agreement. The Grantor agrees to
indemnify and defend the Sub-Agent against any loss, liability, claim or expense
(including reasonable attorneys' fees) arising from the Sub-Agent's entry into
this Agreement and actions taken hereunder, except to the extent resulting from
the Sub-Agent's gross negligence or willful misconduct.
11. The term of this Agreement shall extend from the date hereof until the
earlier of (a) the date on which the Sub-Agent has been notified in writing by
the Collateral Agent that the Sub-Agent has no further duties under this
Agreement and (b) the date of termination specified in the notice of removal
given by the Collateral Agent, or notice of resignation given by the Sub-Agent,
as the case may be, pursuant to paragraph 9. The obligations of the Sub-Agent
contained in the last sentence of paragraph 9 and in paragraph 15, and the
obligations of the Grantor contained in paragraphs 7 and 10, shall survive the
termination of this Agreement.
12. All notices and communications hereunder shall be in writing and shall
be delivered by hand or by courier service, mailed by certified or registered
mail or sent by fax (except where telephonic instructions or notices are
authorized herein) and shall be effective on the day on which received (a) in
the case of the Collateral Agent, to Mellon Bank, N.A., at [ ], Attention of
[Collateral Monitoring Department], and (b) in the case of the SubAgent,
addressed to [ ], Attention of [ ]. For
<PAGE>
5
purposes of this Agreement, any officer of the Collateral Agent shall be
authorized to act, and to give instructions and notices, on behalf of the
Collateral Agent hereunder.
13. The Sub-Agent will not assign or transfer any of its rights or
obligations hereunder (other than to the Collateral Agent) without the prior
written consent of the other parties hereto, and any such attempted assignment
or transfer shall be void.
14. Except as provided in paragraph 5 above, this Agreement may be amended
only by a written instrument executed by the Collateral Agent, the Sub-Agent and
the Grantor, acting by their duly authorized representative officers.
15. Except as otherwise provided in the Credit Agreement with respect to
rights of set off available to the Sub-Agent in its capacity as a Lender (if and
so long as the Sub-Agent is a Lender thereunder), the Sub-Agent hereby
irrevocably waives any right to set off against, or otherwise deduct from, any
funds held in the Collection Deposit Account and all items (and Proceeds
thereof) that come into its possession in connection with the Collection Deposit
Account any indebtedness or other claim owed by the Grantor or any affiliate
thereof to the Sub-Agent; PROVIDED, HOWEVER, that this paragraph shall not limit
the ability of the Sub-Agent to, and the Sub-Agent may, (a) exercise any right
to set off against, or otherwise deduct from, any such funds to the extent
necessary for the Sub-Agent to collect any fees owed to it by the Grantor in
connection with the Collection Deposit Account, (b) charge back and net against
the Collection Deposit Account any returned or dishonored items or other
adjustments in accordance with the Sub-Agent's usual practices and (c) (i)
establish the reserves contemplated in paragraph 4 in respect of unpaid fees and
amounts which may be subject to collection and (ii) transfer funds in respect of
such reserves from the Collection Deposit Account to the separate deposit
account with the Sub-Agent as contemplated in paragraph 4.
16. This Agreement shall inure to the benefit of and be binding upon the
Collateral Agent, the Sub-Agent, the Grantor and their respective permitted
successors and assigns.
17. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof.
18. EXCEPT TO THE EXTENT THE LAWS OF THE STATE OF [ ] GOVERN THE
COLLECTION DEPOSIT ACCOUNT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
19. The Sub-Agent shall be an independent contractor. This Agreement does
not give rise to any partnership, joint venture or fiduciary relationship.
<PAGE>
6
20. In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
[Name of Grantor],
by:
-----------------------
Name:
Title:
MELLON BANK, N.A., as Collateral
Agent,
by:
-----------------------
Name:
Title:
[Sub-Agent],
by:
-----------------------
Name:
Title:
<PAGE>
Annex 2 to the
Security Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to (a) the Credit Agreement dated as of June 23, 1999
(as amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among Anteon Corporation (the "BORROWER"), Azimuth Technologies,
Inc. ("AZIMUTH"), the lenders from time to time party thereto (the "LENDERS"),
Credit Suisse First Boston, as administrative agent for the Lenders (in such
capacity, the "ADMINISTRATIVE AGENT") and as issuing bank, Mellon Bank, N.A., as
collateral agent (in such capacity, the "COLLATERAL AGENT"), syndication agent
and swingline lender, and Deutsche Bank AG, New York Branch, as documentation
agent, (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999 (as
amended, supplemented or otherwise modified from time to time, the "SUBSIDIARY
GUARANTEE AGREEMENT"), among the Subsidiary Guarantors and the Collateral Agent,
and (c) the Security Agreement dated as of June 23, 1999 (as amended,
supplemented or otherwise modified from time to time, the "SECURITY AGREEMENT")
among the Borrower, the Subsidiary Guarantors and the Collateral Agent.
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Credit Agreement or the Security Agreement, as
applicable.
The undersigned, a Financial Officer and the general counsel,
respectively, of the Borrower, hereby certify to the Collateral Agent and each
other Secured Party as follows:
1. NAMES.
(a) The exact corporate name of each Grantor, as such name appears in its
respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor has had in
the past five years, together with the date of the relevant change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has changed its
identity or corporate structure in any way within the past five years. Changes
in identity or corporate structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information required by Sections 1 and 2 of this certificate as to each
acquiree or constituent party to a merger or consolidation.
(d) The following is a list of all other names (including trade names or
similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
<PAGE>
2
(e) Set forth below is the Federal Taxpayer Identification Number of each
Grantor:
2. CURRENT LOCATIONS.
(a) The chief executive office of each Grantor is located at the address
set forth opposite its name below:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(b) Set forth below opposite the name of each Grantor are all locations
where such Grantor maintains any books or records relating to any Accounts
Receivable (with each location at which chattel paper, if any, is kept being
indicated by an "*"):
Grantor Mailing Address County State
- ------- --------------- ------ -----
(c) Set forth below opposite the name of each Grantor are all the places
of business of such Grantor not identified in paragraph (a) or (b) above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(d) Set forth below opposite the name of each Grantor are all the
locations where such Grantor maintains any Collateral not identified above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(e) Set forth below opposite the name of each Grantor are the names and
addresses of all persons other than such Grantor that have possession of any of
the Collateral of such Grantor:
Grantor Mailing Address County State
- ------- --------------- ------ -----
<PAGE>
3
3. UNUSUAL TRANSACTIONS. All Accounts Receivable have been originated by
the Grantors and all Inventory has been acquired by the Grantors in the ordinary
course of business.
4. FILE SEARCH REPORTS. Attached hereto as Schedule 4(A) are true copies
of file search reports from the Uniform Commercial Code filing offices where
filings described in Section 3.19 of the Credit Agreement are to be made.
Attached hereto as Schedule 4(B) is a true copy of each financing statement or
other filing identified in such file search reports.
5. UCC FILINGS. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto have been prepared for filing in the
Uniform Commercial Code filing office in each jurisdiction where a Grantor has
Collateral as identified in Section 2 hereof.
6. SCHEDULE OF FILINGS. Attached hereto as Schedule 6 is a schedule
setting forth, with respect to the filings described in Section 5 above, each
filing and the filing office in which such filing is to be made.
7. STOCK OWNERSHIP AND OTHER EQUITY INTERESTS. Attached hereto as Schedule
7 is a true and correct list of all the duly authorized, issued and outstanding
stock, partnership interests, limited liability company membership interests or
other equity interests of the Borrower and each Subsidiary and the record and
beneficial owners of such equity interests. Also set forth on Schedule 7 is each
equity investment of the Borrower and each Subsidiary that represents 50% or
less of the equity of the entity in which such investment was made.
8. NOTES. Attached hereto as Schedule 8 is a true and correct list of all
notes held by the Borrower and each Subsidiary and all intercompany notes
between Azimuth, the Borrower and each Subsidiary and between each Subsidiary
and each other Subsidiary.
9. INVESTMENT ACCOUNTS. Attached hereto as Schedule 9 is a true and
correct list of all bank, brokerage and other deposits or securities investment
accounts maintained by the Borrower and the Subsidiaries.
10. ASSIGNMENT OF CLAIMS ACT. Attached hereto as Schedule 10 is a true and
correct list of all Government Contracts that as of the date hereof constitute
Material Contracts, setting forth the contract number, name and address of
contracting officer (or other party to whom a notice of assignment under the
Assignment of Claims Act should be sent), contract start date and end date,
agency with which the contract was entered into, and a description of the
contract type.
11. ADVANCES. Attached hereto as Schedule 11 is a true and correct list of
all advances made by the Borrower or any Subsidiary to Azimuth, the Borrower or
any
<PAGE>
4
Subsidiary, which advances will be on and after the date hereof evidenced by one
or more intercompany notes pledged to the Collateral Agent under the Pledge
Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed this certificate on
this [ ] day of [ ].
ANTEON CORPORATION,
by:
------------------------
Name:
Title:[Financial Officer]
by:
------------------------
Name:
Title: [General Counsel]
<PAGE>
Annex 3 to the
Security Agreement
SUPPLEMENT NO. __ dated as of , to the Security Agreement
dated as of June 23, 1999, among ANTEON CORPORATION, a Virginia
corporation (the "BORROWER"), each subsidiary of the Borrower listed
on Schedule I thereto (each such subsidiary individually a
"SUBSIDIARY GUARANTOR" and collectively, the "SUBSIDIARY
GUARANTORS"; the Subsidiary Guarantors and the Borrower are referred
to collectively herein as the "GRANTORS") and MELLON BANK, N.A., a
national banking association ("MELLON"), as collateral agent (in
such capacity, the "COLLATERAL AGENT") for the Secured Parties (as
defined herein).
A. Reference is made to (a) the Credit Agreement dated as of June 23, 1999
(as amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Borrower, the lenders from time to time party thereto
(the "LENDERS"), Credit Suisse First Boston, a bank organized under the laws of
Switzerland, acting through its New York branch ("CSFB"), as administrative
agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and as
issuing bank, Mellon, as Collateral Agent, syndication agent and swingline
lender, and Deutsche Bank AG, New York Branch, as documentation agent, and (b)
the Subsidiary Guarantee Agreement dated as of June 23, 1999 (as amended,
supplemented or otherwise modified from time to time, the "GUARANTEE
AGREEMENT"), among the Subsidiary Guarantors and the Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement or the Credit
Agreement, as applicable.
C. The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Section 7.15 of Security Agreement provides that additional Subsidiaries
of the Borrower may become Grantors under the Security Agreement by execution
and delivery of an instrument in the form of this Supplement. The undersigned
Subsidiary (the "NEW GRANTOR") is executing this Supplement in accordance with
the requirements of the Credit Agreement to become a Grantor under the Security
Agreement in order to induce the Lenders to make additional Loans and the
Issuing Bank to issue additional Letters of Credit and as consideration for
Loans previously made and Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Grantor agree as follows:
SECTION 1. In accordance with Section 7.15 of the Security Agreement, the
New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the
<PAGE>
2
foregoing, the New Grantor, as security for the payment and performance in full
of the Obligations (as defined in the Security Agreement), does hereby create
and grant to the Collateral Agent, its successors and assigns, for the benefit
of the Secured Parties, their successors and assigns, a security interest in and
lien on all of the New Grantor's right, title and interest in and to the
Collateral (as defined in the Security Agreement) of the New Grantor. Each
reference to a "Grantor" in the Security Agreement shall be deemed to include
the New Grantor. The Security Agreement is hereby incorporated herein by
reference.
SECTION 2. The New Grantor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor and (b) set forth under
its signature hereto, is the true and correct location of the chief executive
office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
<PAGE>
3
SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 7.01 of the Security Agreement. All
communications and notices hereunder to the New Grantor shall be given to it at
the address set forth under its signature below.
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.
[Name Of New Grantor],
by:
--------------------------
Name:
Title:
Address:
MELLON BANK, N.A., as Collateral Agent,
by:
--------------------------
Name:
Title:
<PAGE>
SCHEDULE I
to Supplement No.___ to the
Security Agreement
LOCATION OF COLLATERAL
Description Location
- ----------- --------
<PAGE>
Exhibit 10.9
FEE AGREEMENT
FEE AGREEMENT (the "Agreement"), dated as of June 1, 1999, between ANTEON
CORPORATION, a Virginia corporation (the "Company") and CAXTON-ISEMAN CAPITAL,
INC., a Delaware corporation ("CIC").
WHEREAS, the Company desires for CIC to provide certain ongoing advisory
and management services to the Company, and CIC is willing to provide such
services subject to the terms and conditions contained herein.
WHEREAS, all capitalized terms used in this Agreement but not otherwise
defined herein shall have the meaning ascribed to them in the Confidential
Offering Circular of the Company, dated May 6, 1999, for its 12% Senior
Subordinated Notes Due 2009.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1.SERVICES. During the term of this Agreement, CIC shall provide such
acquisition and financial advisory services to the Company and its subsidiaries
as the Board of Directors of the Company shall reasonably request, including
without limitation: providing general business advice, including recommendations
as to, and identification of, acquisitions and dispositions of operating
entities; structuring and negotiating transactions and recommending positions in
or securities of selected entities; identifying, structuring and obtaining bank,
institutional and other sources of financing needed or appropriate in connection
with any proposed transaction, arranging appropriate introductions and marketing
the financing proposals; and supervising the preparation and review of all
documents required to complete each transaction.
2.COMPENSATION. (a) In consideration of the services previously provided
and to be provided in accordance with Section 1, the Company shall pay to CIC a
management fee of $500,000 annually, commencing on January 1, 1998 and
terminating upon the successful completion of the acquisition of Analysis &
Technology, Inc., a Connecticut corporation ("A&T") by the Company (the
"Acquisition"). Thereafter, the annual management fee shall be $1,000,000. All
fees shall be pro-rated for partial years.
(b) Immediately upon the successful completion of the Acquisition, the
Company shall pay to CIC a transaction fee equal to $1,110,000.
(c) Notwithstanding anything to the contrary in Section 2(a), the
management fee payable in any fiscal year shall not exceed the amounts permitted
under the Company's Credit Agreement, dated as of the date hereof, with the
lenders named therein, Credit Suisse First Boston, as lead arranger and
administrative agent,
<PAGE>
Mellon Bank, N.A., as co-arranger, collateral agent and syndication agent, and
Deutsche Bank A.G., as documentation agent (as amended, the "Credit Agreement")
or under the Indenture, dated May 11, 1999, governing the Company's 12% Senior
Subordinated Notes; provided that on the first day in any fiscal year upon which
the full amount payable under Section 2(a) with respect to such fiscal year
shall be permitted to be paid, such amount shall be paid, and upon the first day
upon which any amount that would have been payable under Section 2(a) with
respect to any prior fiscal year except for the provisions of this Section 2(c),
such amount shall be paid.
(d) If the Company is involved in any acquisitions, financings or similar
transactions with respect to which CIC provides services, an investment banking
fee shall also be paid by the Company to CIC, subject to the agreement of both
CIC and the Company. The amounts of all fees referred to in this Section 2(d)
are subject to the consent of the Company's lenders under the Credit Agreement
referred to in Section 2(c).
3.REIMBURSEMENT. CIC and its affiliates shall be entitled to reimbursement
of all reasonable out-of-pocket expenses (including, without limitation, legal,
accounting, consulting and travel fees and expenses) incurred in connection with
the performance of this Agreement (other than salary expenses and associated
overhead charges), which amounts shall be promptly reimbursed by the Company
upon request.
4.INDEMNITY. (a) None of CIC, any of its Affiliates or any of their
respective partners, officers, directors, stockholders, affiliates, agents or
employees (each an "Indemnified Party") shall have any liability to the Company
for any services provided pursuant to this Agreement, except as may result from
such Indemnified Party's gross negligence or willful misconduct.
(b) The Company hereby agrees to indemnify each Indemnified Party from and
against all losses, liabilities, damages, deficiencies, demands, claims,
actions, judgments or causes of action, assessments, costs or expenses
(including, without limitation, interest, penalties and reasonable fees,
expenses and disbursements of attorneys, experts, personnel and consultants
reasonably incurred by the Indemnified Party in any action or proceeding between
the Company and the Indemnified Party or between the Indemnified Party and any
third party, or otherwise) based upon, arising out of or otherwise in respect of
this Agreement or any Indemnified Party's equity interest in the Company. To the
extent that the foregoing indemnification is not permitted by law, each of the
Indemnified Parties and the Company shall be subject and entitled to
contribution based upon the relative benefits (not to exceed in any event the
amount of fees paid to CIC hereunder) received by each and, if legally required,
based upon the relative fault of each of the Indemnified Parties and the
Company.
Section 5. ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the written consent of the other party; provided, that the
Company
2
<PAGE>
shall be entitled to assign this Agreement to any Person that is an Affiliate of
the Company or that otherwise assumed or is a successor to substantially all of
the assets and the liabilities of the Company.
Section 6. MODIFICATION. This Agreement may not be modified or amended in
any manner other than by an instrument in writing signed by both parties hereto,
or their respective successors or assigns.
Section 7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any prior agreement or understanding among them with respect to such
subject matter.
Section 8. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid and return receipt requested. Any such notice shall be deemed given when
so delivered personally or sent by facsimile transmission or, if mailed, five
(5) days after the date of deposit in the United States mails, as follows:
(c) if to CIC, to:
Caxton-Iseman Capital, Inc.
667 Madison Avenue, 10th Floor
New York, NY 10021
Attention: Frederick J. Iseman
Telephone: (212) 752-1850
Facsimile: (212) 832-9450
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Carl L. Reisner, Esq.
Telephone: (212) 373-3017
Facsimile: (212) 373-2085
3
<PAGE>
(d) if to the Company, to:
Anteon Corporation
3211 Jermantown Road, Suite 700
Fairfax, VA 22030
Attention: Joseph Kampf
Telephone: (703) 246-0300
Facsimile: (703) 246-0375
Any party may, by notice given in accordance with this Section to the other
parties, designate another address or person for receipt of notices hereunder.
Section 9. GOVERNING LAW; SUBMISSION TO JURISDICTION. All questions
concerning the construction, validity and interpretation of this Agreement will
be governed by and construed in accordance with the internal law (and not the
law of conflicts) of the State of New York.
Section 10. TERMINATION. This Agreement may be terminated by CIC or the
Company at any time by written notice from one to the other. The provisions of
Section 4 and the obligations of the Company under Sections 2 (including rights
to future payment in accordance with Section 2(c)) and 3 with respect to any
compensation or reimbursement for expenses shall survive any termination of this
Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ANTEON CORPORATION
By: /s/ Carlton Crenshaw
-----------------------------------
Name: Carlton Crenshaw
Title: Senior Vice President, Chief
Financial and Administrative
Officer
CAXTON-ISEMAN CAPITAL, INC.
By: /s/ Frederick J. Iseman
-----------------------------------
Name: Frederick J. Iseman
Title: Chairman
5
<PAGE>
EXHIBIT 10.10
AMENDED AND RESTATED
ANTEON CORPORATION
OMNIBUS STOCK PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS. Anteon
Corporation hereby establishes the ANTEON CORPORATION OMNIBUS STOCK PLAN (the
"Plan"). The purpose of the Plan is to promote the long-term growth and
profitability of Anteon Corporation (the "Corporation") by (i) providing key
people with incentives to improve stockholder value and to contribute to the
growth and financial success of the Corporation, and (ii) enabling the
Corporation to attract, retain and reward the best available persons for
positions of substantial responsibility.
The Plan permits the granting of stock options (including
nonqualified stock options and incentive stock options qualifying under
Section 422 of the Code), stock appreciation rights (including freestanding,
tandem and limited stock appreciation rights), restricted or unrestricted
stock awards, phantom stock, or any combination of the foregoing
(collectively, "Awards").
The Plan is a compensatory benefit plan within the meaning of Rule
701 under the Securities Act of 1933 (the "Securities Act"). Except to the
extent any other exemption from the Securities Act is expressly relied upon
in connection with any agreement entered into pursuant to the Plan or the
securities issuable hereunder are registered under the Securities Act, the
issuance of Common Stock pursuant to the Plan is intended to qualify for the
exemption from registration under the Securities Act provided by Rule 701.
To the extent that an exemption from registration under the Securities Act
provided by Rule 701 is unavailable, all unregistered offers and sales of
Awards and shares of Common Stock issuable upon exercise of an Award are
intended to be exempt from registration under the Securities Act in reliance
upon the private offering exemption contained in Section 4(2) of the
Securities Act, or other available exemption, and the Plan shall be so
administered.
2. DEFINITIONS. Under this Plan, except where the context
otherwise indicates, the following definitions apply:
(a) "AFFILIATE" shall mean any person controlled by,
controlling or under common control with the Corporation.
(b) "AWARD" shall mean any stock option, stock appreciation
right, stock award, or phantom stock award.
<PAGE>
(c) "BOARD" shall mean the Board of Directors of the
Corporation.
(d) "CHANGE IN CONTROL" shall mean (i) any sale, exchange or
other disposition of substantially all of the Corporation's assets; or (ii)
any merger, share exchange, consolidation or other reorganization or business
combination in which the Corporation is not the surviving or continuing
corporation, or in which the Corporation's stockholders become entitled to
receive cash, securities of the Corporation other than voting common stock,
or securities of another issuer other than an Affiliate.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations issued thereunder.
(f) "COMMITTEE" shall mean the Board or committee of Board
members appointed pursuant to Section 3 of the Plan to administer the Plan.
(g) "COMMON STOCK" shall mean shares of the Corporation's
Class 1 Common Stock, par value of five cents ($0.05) per share.
(h) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(i) "FAIR MARKET VALUE" of a share of the Corporation's
Common Stock for any purpose on a particular date shall be determined in a
manner such as the Committee shall in good faith determine to be appropriate;
provided, however, that if the Common Stock is publicly traded, then the Fair
Market Value shall mean the last reported sale price per share of Common
Stock, 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 a national securities
exchange or included for quotation on the Nasdaq-National Market, or if the
Common Stock is not so listed or admitted to trading or included for
quotation, the last quoted price, or if the Common Stock is not so quoted,
the average of the high bid and low asked prices, regular way, in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation system or, if such system is no
longer in use, the principal other automated quotations system that may then
be in use or, if the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices, regular way, as furnished by a
professional market maker making a market in the Common Stock as selected in
good faith by the Committee or by such other source or sources as shall be
selected in good faith by the Committee; and provided further, that in the
case of incentive stock options, the determination of Fair Market Value shall
be made by the Committee in
<PAGE>
good faith in compliance with the Treasury Regulations under Section 422 of
the Code. If, as the case may be, the relevant date is not a trading day,
the determination shall be made as of the next preceding trading day. As
used herein, the term "trading day" shall mean a day on which public trading
of securities occurs and is reported in the principal consolidated reporting
system referred to above, or if the Common Stock is not listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, any day other than a Saturday, a Sunday or a day in
which banking institutions in the state of New York are closed.
(j) "GRANT AGREEMENT" shall mean a written agreement between
the Corporation and a grantee memorializing the terms and conditions of an
Award granted pursuant to the Plan.
(k) "GRANT DATE" shall mean the date on which the Committee
formally acts to grant an Award to a grantee or such other date as the
Committee shall so designate at the time of taking such formal action.
(l) "PARENT" shall mean a corporation, whether now or
hereafter existing, within the meaning of the definition of "Parent
corporation" provided in Section 424(e) of the Code, or any successor thereto
of similar import.
(m) "RULE 16B-3" shall mean Rule 16b-3 as in effect under the
Exchange Act on the effective date of the Plan, or any successor provision
prescribing conditions necessary to exempt the issuance of securities under
the Plan (and further transactions in such securities) from Section 16(b) of
the Exchange Act.
(n) "SUBSIDIARY" and "SUBSIDIARIES" shall mean only a
corporation or corporations, whether now or hereafter existing, within the
meaning of the definition of "subsidiary corporation" provided in Section
424(f) of the Code, or any successor thereto of similar import.
3. ADMINISTRATION.
(a) PROCEDURE. The Plan shall be administered by the Board.
In the alternative, the Board may appoint a Committee consisting of not less
than three (3) members of the Board to administer the Plan on behalf of the
Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board. From time to time, the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefore, fill
vacancies, however caused, and remove all members of the Committee and,
thereafter, directly administer the Plan. In the event that the Board is the
<PAGE>
administrator of the Plan in lieu of a Committee, the term "Committee" as
used herein shall be deemed to mean the Board.
Members of the Board or Committee who are either eligible for
Awards or have been granted Awards may vote on any matters, affecting the
administration of the Plan or the grant of Awards pursuant to the Plan,
except that no such member shall act upon the granting of an Award to himself
or herself, but any such member may be counted in determining the existence
of a quorum at any meeting of the Board or the Committee during which action
is taken with respect to the granting of an Award to him or her.
The Committee shall meet at such times and places and upon such
notice as it may determine. A majority of the Committee shall constitute a
quorum. Any acts by the Committee may be taken at any meeting at which a
quorum is present and shall be by majority vote of those members entitled to
vote. Additionally, any acts reduced to writing or approved in writing by all
of the members of the Committee shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION OF COMMON STOCK.
Notwithstanding the provisions of subsection (a) above, in the event that the
Common Stock or any other capital stock of the Corporation becomes registered
under Section 12 of the Exchange Act, the members of the Committee shall be
both "Non-Employee Directors" within the meaning of Rule 16b-3, and "outside
directors" within the meaning of Section 162(m) of the Code. Upon and after
the point in time that the Common Stock or any other capital stock of the
Corporation becomes registered under Section 12 of the Exchange Act, the
Board shall take all action necessary to cause the Plan to be administered in
accordance with the then effective provisions of Rule 16b-3, provided that
any amendment to the Plan required for compliance with such provisions shall
be made in accordance with Section 13 of the Plan.
(c) POWER OF THE COMMITTEE. The Committee shall have all the
powers vested in it by the terms of the Plan, such powers to include the
authority, in its sole and absolute discretion, to grant Awards under the
Plan, prescribe Grant Agreements evidencing such Awards and establish
programs for granting Awards. The Committee shall have full power and
authority to take all other actions necessary to carry out the purpose and
intent of the Plan, including, but not limited to, the authority to:
(i) determine the eligible persons to whom, and the time
or times at which Awards shall be granted,
(ii) determine the types of Awards to be granted,
<PAGE>
(iii) determine the number of shares to be covered by or
used for reference purposes for each Award,
(iv) impose such terms, limitations, restrictions and
conditions upon any such Award as the Committee shall deem appropriate,
(v) modify, extend or renew outstanding Awards, accept
the surrender of outstanding Awards and substitute new Awards, provided
that no such action shall be taken with respect to any outstanding Award
which would adversely affect the grantee without the grantee's consent,
(vi) accelerate or otherwise change the time in which an
Award may be exercised or becomes payable and to waive or accelerate the
lapse, in whole or in part, of any restriction or condition with respect to
such Award, including, but not limited to, any restriction or condition
with respect to the vesting or exercisability of an Award following
termination of any grantee's employment, and
(vii) to establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of
a performance period.
The Committee shall have full power and authority to administer and
interpret the Plan and to adopt such rules, regulations, agreements,
guidelines and instruments for the administration of the Plan and for the
conduct of its business as the Committee deems necessary or advisable and to
interpret same, all within the Committee's sole and absolute discretion.
(d) LIMITED LIABILITY. To the maximum extent permitted by
law, no member of the Board or Committee shall be liable for any action taken
or decision made in good faith relating to the Plan or any Award thereunder.
(e) INDEMNIFICATION. To the maximum extent permitted by law,
the members, including former members, of the Board and Committee shall be
indemnified by the Corporation in respect of all their activities under the
Plan.
(f) EFFECT OF COMMITTEE'S DECISION. All actions taken and
decisions and determinations made by the Committee on all matters relating to
the Plan pursuant to the powers vested in it hereunder shall be in the
Committee's sole and absolute discretion and shall be conclusive and binding
on all parties concerned, including the Corporation, its stockholders, any
participants in the Plan and any other employee of the Corporation, and their
respective successors in interest.
<PAGE>
4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS. Subject to
adjustments as provided in Section 11 of the Plan, the shares of stock that
may be delivered or purchased or used for reference purposes (with respect to
stock appreciation rights, phantom stock units or performance awards payable
in cash) with respect to Awards granted under the Plan, including with
respect to incentive stock options intended to qualify under Section 422 of
the Code, shall not exceed an aggregate of 250,000 shares of Common Stock of
the Corporation. The Corporation shall reserve said number of shares for
Awards under the Plan, subject to adjustments as provided in Section 11 of
the Plan if any Award, or portion of an Award, under the Plan expires or
terminates unexercised, becomes unexercisable or is forfeited or otherwise
terminated, surrendered or canceled as to any shares without the delivery of
shares of Common Stock or other consideration, the shares subject to such
Award shall thereafter be available for further Awards under the Plan.
5. PARTICIPATION. Participation in the Plan shall only be open
to a designated class of employees, officers, directors and consultants of
the Corporation, or of any Parent or Subsidiary of the Corporation, as set
forth in Schedule A and as may be changed by the Committee in its sole and
absolute discretion from time to time. Notwithstanding the foregoing,
participation in the Plan with respect to Awards of incentive stock options
shall be limited to employees of the Corporation or of any Parent or
Subsidiary of the Corporation. To the extent necessary to comply with Rule
16b-3 or to constitute an "outside director" within the meaning of Section
162(m) of the Code, and only in the event that Rule 16b-3 or Section 162(m)
of the Code is applicable to the Plan or an Award made thereunder, Committee
members shall not be eligible to participate in the Plan while members of the
Committee.
Awards may be granted to such eligible persons and for or with
respect to such number of shares of Common Stock as the Committee shall
determine, subject to the limitations in Section 4 of the Plan. A grant of
any type of Award made in any one year to an eligible person shall neither
guarantee nor preclude a further grant of that or any other type of Award to
such person in that year or subsequent years.
6. STOCK OPTIONS. Subject to the other applicable provisions of
the Plan, the Committee may from time to time grant to eligible participants
Awards of nonqualified stock options or incentive stock options as that term
is defined in Section 422 of the Code. The stock option Awards granted shall
be subject to the following terms and conditions.
(a) GRANT OF OPTION. The grant of a stock option shall be
evidenced by a Grant Agreement, executed by the Corporation and the grantee,
stating the number of shares of Common Stock subject to the stock option
evidenced thereby and the terms and conditions of such stock option, in such
form as the Committee may from time to time determine.
<PAGE>
(b) PRICE. The price per share payable upon the exercise of
each stock option ("exercise price") shall be determined by the Committee,
provided, however, that in the case of incentive stock options, the exercise
price shall not be less than 100% of the Fair Market Value of the shares on
the date the stock option is granted.
(c) PAYMENT. Stock options may be exercised in whole or in
part by payment of the exercise price of the shares to be acquired in
accordance with the provisions of the Grant Agreement, and/or such rules and
regulations as the Committee may have prescribed, and/or such determinations,
orders, or decisions as the Committee may have made. Payment may be made in
cash (or cash equivalents acceptable to the Committee) or, unless otherwise
determined by the Committee, in shares of Common Stock or a combination of
cash and shares of Common Stock, or by such other means as the Committee may
prescribe. The Fair Market Value of shares of Common Stock delivered on
exercise of stock options shall be determined as of the date of exercise.
Shares of Common Stock delivered in payment of the exercise price may be
previously owned shares or, if approved by the Committee, shares acquired
upon the exercise of the stock option. Any fractional share will be paid in
cash. Subject to any restrictions imposed by the Corporation's lenders or
creditors, the Corporation may make loans to grantees to assist grantees in
exercising stock options and satisfying any related withholding tax
obligations.
If the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, the Committee, subject to such limitations as it may
determine, may authorize payment of the exercise price, in whole or in part,
by delivery of a properly executed exercise notice, together with irrevocable
instructions, to: (i) a brokerage firm designated by the Corporation to
deliver promptly to the Corporation the aggregate amount of sale or loan
proceeds to pay the exercise price and any withholding tax obligations that
may arise in connection with the exercise, and (ii) the Corporation to
deliver the certificates for such purchased shares directly to such brokerage
firm.
(d) TERM OF OPTIONS. The term during which each stock option
may be exercised shall be determined by the Committee and set forth in the
Grant Agreement between the Corporation and the grantee. Prior to the
exercise of the stock option and delivery of the shares certificates
represented thereby, the grantee shall have none of the rights of a
stockholder with respect to any shares represented by an outstanding stock
option.
(e) RESTRICTIONS ON INCENTIVE STOCK OPTIONS. Incentive stock
option Awards granted under the Plan shall comply in all respects with Code
Section 422 and, as such, shall meet the following additional requirements:
<PAGE>
(i) GRANT DATE. An incentive stock option must be
granted within 10 years of the earlier of the Plan's adoption by the Board
of Directors or approval by the Corporation's shareholders.
(ii) EXERCISE PRICE AND TERM. The exercise price of an
incentive stock option shall not be less than 100% of the Fair Market Value
of the shares on the date the stock option is granted. Also, the exercise
price of any incentive stock option granted to a grantee who owns (within
the meaning of Section 422(b)(6) of the Code, after the application of the
attribution rules in Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of shares of the Corporation or its
Parent or Subsidiary corporations (within the meaning of Sections 422 and
424 of the Code) shall be not less than 110% of the Fair Market Value of
the Common Stock on the grant date and the term of such stock option shall
not exceed five years.
(iii) MAXIMUM GRANT. The aggregate Fair Market Value
(determined as of the Grant Date) of shares of Common Stock with respect to
which all incentive stock options first become exercisable by any grantee
in any calendar year under this or any other plan of the Corporation and
its Parent and Subsidiary corporations may not exceed $100,000 or such
other amount as may be permitted from time to time under Section 422 of the
Code. To the extent that such aggregate Fair Market Value shall exceed
$100,000, or other applicable amount, such stock options shall be treated
as nonqualified stock options. In such case, the Corporation may designate
the shares of Common Stock that are to be treated as stock acquired
pursuant to the exercise of an incentive stock option by issuing a separate
certificate for such shares and identifying the certificate as incentive
stock option shares in the stock transfer records of the Corporation.
(iv) GRANTEE. Incentive stock options shall only be
issued to employees of the Corporation, or of a Parent or Subsidiary of the
Corporation.
(v) DESIGNATION. No stock option shall be an incentive
stock option unless so designated by the Committee at the time of grant or
in the Grant Agreement evidencing such stock option.
(vi) OTHER TERMS AND CONDITIONS. Stock options may
contain such other provisions, not inconsistent with the provisions of the
Plan, as the Committee shall determine appropriate from time to time.
<PAGE>
7. STOCK APPRECIATION RIGHTS.
(a) Award of Stock Appreciation Rights. Subject to the other
applicable provisions of the Plan, the Committee may at any time and from
time to time grant stock appreciation rights ("SARs") to eligible
participants, either on a free-standing basis (without regard to or in
addition to the grant of a stock option) or on a tandem basis (related to the
grant of an underlying stock option), as it determines. SARs granted in
tandem with or in addition to a stock option may be granted either at the
same time as the stock option or at a later time; provided, however, that a
tandem SAR shall not be granted with respect to any outstanding incentive
stock option Award without the consent of the grantee. SARs shall be
evidenced by Grant Agreements, executed by the Corporation and the grantee,
stating the number of shares of Common Stock subject to the SAR evidenced
thereby and the terms and conditions of such SAR, in such form as the
Committee may from time to time determine. The term during which each SAR
may be exercised shall be determined by the Committee. The grantee shall
have none of the rights of a stockholder with respect to any Shares of Common
Stock represented by a SAR.
(b) RESTRICTIONS OF TANDEM SARS. No incentive stock option
may be surrendered in connection with the exercise of a tandem SAR unless the
Fair Market Value of the Common Stock subject to the incentive stock option
is greater than the exercise price for such incentive stock option. SARs
granted in tandem with stock options shall be exercisable only to the same
extent and subject to the same conditions as the stock options related
thereto are exercisable. The Committee may, in its discretion, prescribe
additional conditions to the exercise of any such tandem SAR.
(c) AMOUNT OF PAYMENT UPON EXERCISE OF SARS. A SAR shall
entitle the grantee to receive, subject to the provisions of the Plan and the
Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share
of Common Stock over (B) the base price per share specified in the Grant
Agreement, which shall be determined by the Committee but which shall not be
less than 100% of the Fair Market Value of one share of Common Stock on the
date of grant of the SAR, times (ii) the number of shares specified by the
SAR, or portion thereof, which is exercised. In the case of exercise of a
tandem SAR, such payment shall be made in exchange for the surrender of the
unexercised related stock option (or any portion or portions thereof which
the grantee from time to time determines to surrender for this purpose).
(d) FORM OF PAYMENT UPON EXERCISE OF SARS. Payment by the
Corporation of the amount receivable upon any exercise of an SAR may be made
by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole and absolute discretion of the Committee
from time to time. If upon settlement of the exercise of an SAR a grantee is
to receive a portion of
<PAGE>
such payment in shares of Common Stock, the number of shares shall be
determined by dividing such portion by the Fair Market Value of a share of
Common Stock on the exercise date. No Fractional shares shall be used for
such payment and the Committee shall determine whether cash shall be given in
lieu of such fractional shares or whether such fractional shares shall be
eliminated.
8. STOCK AWARDS (INCLUDING RESTRICTED AND UNRESTRICTED SHARES AND
PHANTOM STOCK).
(a) STOCK AWARDS IN GENERAL. Subject to the other applicable
provisions of the Plan, the Committee may at any time and from time to time
grant stock Awards to eligible participants in such amount and for such
consideration, including no consideration or such minimum consideration as
may be required by law, as it determines. A stock Award may be denominated
in shares of Common Stock or stock-equivalent units ("phantom stock"), and
may be paid in Common Stock, in cash, or in a combination of Common Stock and
cash, as determined in the sole and absolute discretion of the Committee from
time to time.
(b) RESTRICTED SHARES. Each stock Award shall, specify the
applicable restrictions, if any, on such shares of Common Stock, the duration
of such restrictions, and the time or times at which such restrictions shall
lapse with respect to all or a specified number of shares of Common Stock
that are part of the Award. Notwithstanding the foregoing, the Committee may
reduce or shorten the duration of any restriction applicable to any shares of
Common Stock awarded to any grantee under the Plan. Share certificates with
respect to restricted shares of Common Stock granted pursuant to a stock
Award may be issued at the time of grant of the Stock Award, subject to
Forfeiture as defined in the Grant Agreement if the restrictions do not
lapse, or upon lapse of the restrictions. If share certificates are issued
at the time of grant of the stock Award, the certificates shall bear an
appropriate legend with respect to the restrictions applicable to such stock
Award or, alternatively, the grantee may be required to deposit the
certificates with the Corporation during the period of any restriction
thereon and to execute a blank stock power or other instrument of transfer
therefor. Except as otherwise provided by the Committee, during such period
of restriction following issuance of share certificates, the grantee shall
have all of the rights of a holder of Common Stock, including but not limited
to the rights to receive dividends (or amounts equivalent to dividends) and
to vote with respect to the restricted shares. If share certificates are
issued upon lapse of restrictions on a stock Award, the Committee may provide
that the grantee will be entitled to receive any amounts per share pursuant
to any dividend or distribution paid by the Corporation on its Common Stock
to stockholders of record after grant of the stock Award and prior to the
issuance of the share certificates.
<PAGE>
(c) PHANTOM STOCK. The grant of phantom stock units, if any,
shall be evidenced by a Grant Agreement, executed by the Corporation and the
grantee, that incorporates the terms of the Plan and states the number of
Phantom stock units evidenced thereby and the terms and conditions of such
Phantom stock units in such form as the Committee may from time to time
determine. Phantom stock units granted to a grantee shall be credited to a
bookkeeping reserve account solely for accounting purposes and shall not
require a segregation of any of the Corporation's assets. Phantom stock
units may be exercised in whole or in part by delivery of an appropriate
exercise notice to the Committee in accordance with the provisions of the
Grant Agreement, and/or such rules and regulations as the Committee may
prescribe, and/or such determinations, orders, or decisions as the Committee
may make. Except as otherwise provided in the applicable Grant Agreement,
the grantee shall have none of the rights of a stockholder with respect to
any shares of Common Stock represented by a phantom stock unit as a result of
the grant of a phantom stock unit to the grantee. Phantom stock units may
contain such other provisions, not inconsistent with the provisions of the
Plan, as the Committee shall determine appropriate from time to time.
9. WITHHOLDING OF TAXES. The Corporation may require, as a
condition to the grant of any Award under the Plan or exercise pursuant to
such Award or to the delivery of certificates for shares issued or payments
of cash to a grantee pursuant to the Plan or a Grant Agreement (hereinafter
collectively referred to as a "taxable event"), that the grantee pay to the
Corporation, in cash or, unless otherwise determined by the Corporation, in
shares of Common Stock, including shares acquired upon grant of the Award or
exercise of the Award, valued at Fair Market Value on the date as of which
the withholding tax liability is determined, any federal, state or local
taxes of any kind required by law to be withheld with respect to any taxable
event under the Plan. The Corporation, to the extent permitted or required
by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee any federal, state or
local taxes of any kind required by law to be withheld with respect to any
taxable event under the Plan, or to retain or sell without notice a
sufficient number of the shares to be issued to such grantee to cover any
such taxes.
10. TRANSFERABILITY. To the extent required to comply with Rule
16b-3, if applicable, and in any event in the case of an incentive stock
option or a stock appreciation right granted with respect to an incentive
stock option, no Award granted under the Plan shall be transferable by a
grantee otherwise than by will or the laws of descent and distribution.
Unless otherwise determined by the Committee in accord with the provisions of
the immediately preceding sentence, an Award may be exercised during the
lifetime of the grantee, only by the grantee or, during the period the
grantee is under a legal disability, by the grantee's guardian or legal
representative.
<PAGE>
11. ADJUSTMENTS; BUSINESS COMBINATIONS. In the event of a
reclassification, recapitalization, stock split, stock dividend, combination
of shares, or other similar event, the maximum number and kind of shares
reserved for issuance or with respect to which Awards may be granted under
the Plan as provided in Section 4 shall be adjusted to reflect such event,
and the Committee shall make such adjustments as it deem appropriate and
equitable in the number, kind and price of shares covered by outstanding
Awards made under the Plan, and in any other matters which relate to Awards
and which are affected by the changes in the Common Stock referred to above.
In the event of any proposed Change in Control, the Committee shall
take such action as it deems appropriate and equitable to effectuate the
purposes of this Plan and to protect the grantees of Awards, which action
shall include, but without limitation, the following: (i) acceleration or
change of the exercise dates of any Award so that the unvested portion of any
Award shall become 100% vested and immediately exercisable; (ii) arrangements
with grantees for the payment of appropriate consideration to them for the
cancellation and surrender of any Award, which shall not be less than
consideration paid for other Common Stock of the Corporation which is
acquired, sold, transferred, or exchanged because of the proposed Change in
Control; and (iii) in any case where equity securities other than Common
Stock of the Corporation are proposed to be delivered in exchange for or with
respect to Common Stock of the Corporation, arrangements providing that any
Award shall become one or more Awards with respect to such other equity
securities.
The Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual
or nonrecurring events (including, without limitation, the events described
in the preceding two paragraphs of this Section 12) affecting the
Corporation, or the financial statements of the Corporation or any
Subsidiary, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
In the event the Corporation dissolves and liquidates (other than
pursuant to a plan of merger or reorganization), then notwithstanding any
restrictions on exercise set forth in this Plan or any Grant Agreement, or
other agreement evidencing a stock option, stock appreciation right or
restricted stock Award: (i) each grantee shall have the right to exercise
his stock option or stock appreciation right, or to require delivery of share
certificates representing any such restricted stock Award, at any time up to
ten (10) days prior to the effective date of such liquidation and
dissolution; and (ii) the Committee may make arrangements with the grantee
for the payment of appropriate consideration to him or her for the
cancellation and surrender of any unvested stock option, stock appreciation
right or restricted stock Award that is so canceled or surrendered at any
time up to ten (10) days prior to the effective date of
<PAGE>
such liquidation and dissolution. The Committee may establish a different
period (and different conditions) for such exercise, delivery, cancellation,
or surrender to avoid subjecting the grantee to liability under Section 16(b)
of the Exchange Act. Any stock option or stock appreciation right not so
exercised, canceled, or surrendered shall terminate on the last day for
exercise prior to such effective date; and any restricted stock as to which
there has not been such delivery of share certificates or that has not been
so canceled or surrendered, shall be forfeited on the last day prior to such
effective date. The Committee shall give to each grantee written notice of
the commencement of any proceedings for such liquidation and dissolution of
the Corporation and the grantee's rights with respect to his outstanding
Award.
12. TERMINATION AND MODIFICATION OF THE PLAN. The Board, without
further approval of the stockholders, may modify or terminate the Plan or any
portion thereof at any time, except that no modification shall become
effective without prior approval of the stockholders of the Corporation if
stockholder approval is necessary to comply with any tax or regulatory
requirement or rule of any exchange or Nasdaq System upon which the Common
Stock is listed or quoted, including for this purpose stockholder approval
that is required for continued compliance with Rule 16b-3 or stockholder
approval that is required to enable the Committee to grant incentive stock
options pursuant to the Plan.
The Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may be
dictated by requirements of federal or state laws applicable to the
Corporation or that may be authorized or made desirable by such laws. The
Committee may amend or modify the grant of any outstanding Award in any
manner to the extent that the Committee would have had the authority to make
such Award as so modified or amended.
13. NON-GUARANTEE OF EMPLOYMENT. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an employee to continue
in the employ of the Corporation or shall interfere in any way with the right
of the Corporation to terminate an employee at any time.
14. TERMINATION OF EMPLOYMENT. For purposes of maintaining a
grantee's continuous status as an employee and accrual of rights under any
Award, transfer of an employee among the Corporation and the Corporation's
Parent or Subsidiaries shall not be considered a termination of employment.
Nor shall it be considered a termination of employment for such purposes if
an employee is placed on military or sick leave or such other leave of
absence which is considered as continuing intact the employment relationship;
in such a case, the employment relationship shall be continued until the date
when an employee's right to reemployment shall no longer be guaranteed either
by law or contract.
<PAGE>
15. WRITTEN AGREEMENT. Each Grant Agreement entered into between
the Corporation and a grantee with respect to an Award granted under the Plan
shall incorporate the terms of this Plan and shall contain such provisions,
consistent with the provisions of the Plan, as may be established by the
Committee, including a requirement that the grantee enter into a
stockholder's agreement on such terms as the Committee, in its sole and
absolute discretion, may decide from time to time.
16. NON-UNIFORM DETERMINATIONS. The Committee's determinations
under the Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
17. LIMITATION ON BENEFITS. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable
by the Committee.
18. LISTING AND REGISTRATION. If the Corporation determines that
the listing, registration or qualification upon any securities exchange or
upon any listing or quotation system established by the National Association
of Securities Dealers, Inc. ("Nasdaq System") or under any law, of shares
subject to any Award is necessary or desirable as a condition of, or in
connection with, the granting of same or the issue or purchase of shares
thereunder, no such Award may be exercised in whole or in part and no
restrictions on such Award shall lapse, unless such listing, registration or
qualification is effected free of any conditions not acceptable to the
Corporation.
19. COMPLIANCE WITH SECURITIES LAW. The Corporation may require
that a grantee, as a condition to exercise of an Award, and as a condition to
the delivery of any share certificate, provide to the Corporation, at the
time of each such exercise and each such delivery, a written representation
that the shares of Common Stock being acquired shall be acquired by the
grantee solely for investment and will not be sold or transferred without
registration or the availability of an exemption from registration under the
Securities Act and applicable state securities laws. The Corporation may
also require that a grantee submit other written representations which will
permit the Corporation to comply with federal and applicable state securities
laws in connection with the issuance of the Common Stock, including
representations as to the knowledge and experience in financial and business
matters of the grantee and the grantee's ability to bear the economic risk of
the grantee's investment. The Corporation may require that the grantee
obtain a "purchaser representative" as that term is defined in applicable
federal and state securities laws. The stock certificates for
<PAGE>
any shares of Common Stock issued pursuant to this Plan shall bear a legend
restricting transferability of the shares of Common Stock unless such shares
are registered or an exemption from registration is available under the
Securities Act and applicable state securities laws. The Corporation may
notify its transfer agent to stop any transfer of shares of Common Stock not
made in compliance with these restrictions. Common Stock shall not be issued
with respect to an Award granted under the Plan unless the exercise of such
Award and the issuance and delivery of share certificates for such Common
Stock pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any
national securities exchange or Nasdaq System upon which the Common Stock may
then be listed or quoted, and shall be further subject to the approval of
Counsel for the Corporation with respect to such compliance to the extent
such approval is sought by the Committee.
20. NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in the Plan shall prevent the Corporation or its Parent or
Subsidiary corporations from adopting or continuing in effect other
compensation arrangements (whether such arrangements be generally applicable
or applicable only in specific cases) as the Committee in its sole and
absolute discretion determines desirable, including without limitation the
granting of stock options, stock awards, stock appreciation rights or phantom
stock units otherwise than under the Plan.
21. NO TRUST OR FUND CREATED. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind
or a fiduciary relationship between the Corporation and a grantee or any
other person. To the extent that any grantee or other person acquires a
right to receive payments from the Corporation pursuant to an Award, such
right shall be no greater that the right of any unsecured general creditor of
the Corporation.
22. GOVERNING LAW. The validity, construction and effect of the
Plan, of Grant Agreements entered into pursuant to the Plan, and of any
rules, regulations, determinations or decisions made by the Board or
Committee relating to the Plan or such Grant Agreements, 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 applicable
federal laws and the laws of the Commonwealth of Virginia without regard to
its conflict of laws rules and principles.
23. PLAN SUBJECT TO CHARTER AND BY-LAWS. This Plan is subject to
the Charter and By-Laws by the Corporation, as they may be amended from time
to time.
24. EFFECTIVE DATE; TERMINATION DATE. The Plan is effective as of
the date on which the Plan was adopted by the Board, subject to approval of
the stockholders within twelve months before or after such date. No Award
shall be
<PAGE>
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan. Subject
to other applicable provisions of the Plan, all Awards made under the Plan
prior to such termination of the Plan shall remain in effect until such
Awards have been satisfied or terminated in accordance with the Plan and the
terms of such Awards.
<PAGE>
Exhibit 12.1
ANTEON
RATIO OF EARNINGS TO FIXED CHARGES (CONSOLIDATED ANTEON)
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
PERIOD PERIOD
SIX MONTHS ENDED SUCCESSOR YEAR APRIL 1 TO JANUARY 1 TO PREDECESSOR YEAR
JUNE 30, ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ENDED DECEMBER 31,
--------------- ------------------ ------------ ------------ -------------------
1999 1998 1998 1997 1996 1996 1995 1994
------ ------ ------ ------ ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense, net of
capitalized interest $6,312 $1,818 $ 5,733 $2,413 $1,486 $- $ 135 $ 958
Capitalized interest - - - - - - - -
Portion of rent expense
representative of interest (1) 1,333 708 1,879 1,122 662 215 843 945
------ ------ ------- ------ ------ ----- ------ -------
Total fixed charges $7,645 $2,526 $ 7,612 $3,535 $2,148 $215 $ 978 $ 1,903
Earnings (loss):
Income (loss) before
income taxes $1,147 $3,259 $ 4,821 $2,702 $1,223 $757 $ 826 $(6,040)
Fixed charges, less
capitalized interest 7,645 2,526 7,612 3,535 2,148 215 978 1,903
------ ------ ------- ------ ------ ----- ------ -------
Earnings (losses) adjusted
for fixed charges $8,792 $5,785 $12,433 $6,237 $3,371 $972 $1,804 $(4,137)
Ratio of earnings (losses)
to fixed charges 1.15x 2.29x 1.63x 1.76x 1.57x 4.52x 1.84x -
Deficiency of earnings to
cover fixed charges - - - - - - - (6,040)
</TABLE>
(1) One-third of rent expense is deemed to be representative of interest.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF ANTEON CORPORATION
- -------------------------------------------------------------------------------
NAME OF SUBSIDIARY STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION
- -------------------------------------------------------------------------------
Vector Data Systems, Inc. Virginia
- -------------------------------------------------------------------------------
Techmatics, Inc. Virginia
- -------------------------------------------------------------------------------
Analysis & Technology, Inc. Connecticut
- -------------------------------------------------------------------------------
Interactive Media Corp. Delaware
- -------------------------------------------------------------------------------
Anteon VDS Foreign Enterprises, LLC Delaware
- -------------------------------------------------------------------------------
Anteon VDS Foreign Investments, LLC Delaware
- -------------------------------------------------------------------------------
Vector Research Company, Inc. Maryland
- -------------------------------------------------------------------------------
UP, Inc. Virginia
- -------------------------------------------------------------------------------
Analysis & Technology International Delaware
Corporation
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Anteon Corporation and subsidiaries
We consent to the use of our reports dated February 19, 1999, except as to
note 13, which is as of April 14, 1999, on the consolidated financial
statements of Anteon Corporation and subsidiaries (Successor) as of
December 31, 1998 and 1997, and for the years ended December 31, 1998 and
1997, and for the period from April 1, 1996 to December 31, 1996, and the
financial statements of Ogden Professional Services Corporation (Predecessor)
for the period from January 1, 1996 to March 31, 1996, included herein and to
the references to our firm under the headings "Summary Consolidated Financial
Data--Anteon Corporation," "Selected Consolidated Financial Data--Selected
Consolidated Financial Data of Anteon Corporation" and "Experts" in the
prospectus.
We also consent to the use of our report dated April 30, 1999, on the
consolidated financial statements of Analysis & Technology, Inc. and
subsidiaries as of March 31, 1999 and 1998, and for each of the years in the
three-year period ended March 31, 1999, and to the references to our firm under
the headings "Summary Consolidated Financial Data--Analysis & Technology,
Inc.," "Selected Consolidated Financial Data--Selected Consolidated Financial
Data of Analysis & Technology, Inc." and "Experts" in the prospectus.
KPMG LLP
McLean, Virginia
August 9, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in, or made part of, this
registration statement.
Arthur Andersen LLP
Washington, D.C.
August 6, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 8, 1997 (except for Note C, as to
which the date is August 31, 1997), accompanying the consolidated financial
statements of Techmatics, Inc., contained in the registration statement. We
consent to the use of the aforementioned report in the registration statement
and to the use of our name as it appears under the caption "Experts."
Grant Thornton LLP
Vienna, Virginia
August 6, 1999
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305-(b) (2)
---------
IBJ WHITEHALL BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
Anteon Corporation
(Exact name of each registrant as specified in its charter)
Virginia 54-1023915
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3211 Jermantown Road 22030-2801
Suite 700 (Zip Code)
Fairfax, Virginia
(Address of principal executive office)
12% Senior Subordinated Notes due 2009
(Title of Indenture Securities)
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department,
Two Rector Street, New York, New York
Federal Deposit Insurance Corporation, Washington, D.C.
Federal Reserve Bank of New York Second District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligors.
If the obligors are an affiliate of the trustee, describe each such
affiliation.
The obligors are not an affiliate of the trustee.
2
<PAGE>
Item 13. Defaults by the Obligors.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the obligors are outstanding, or is trustee for
more than one outstanding series of securities under the indenture,
state whether there has been a default under any such indenture or
series, identify the indenture or series affected, and explain the
nature of any such default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Whitehall Bank & Trust Company as amended
to date. (See Exhibit 1A to Form T-1, Securities and Exchange
Commission File No. 22-18460 & 333-46849).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate trust
powers, as amended to date (See Exhibit 4 to Form T-1, Securities and
Exchange Commission File No. 22-19146).
3
<PAGE>
*4. A copy of the existing By-Laws of the trustee, as amended to date (See
Exhibit 4 to Form T-1, Securities and Exchange Commission File No.
333-46849).
5. Not Applicable
6. The consent of United States institutional trustee required by Section
321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligors and its directors or officers,
the trustee has relied upon information furnished to it by the obligors.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligors are not in default under any indenture under which the
applicant is trustee.
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 6th day
of August, 1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By:
-------------------------------
Stephen J. Giurlando
Vice President
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 6th day
August, 1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/Stephen J. Giurlando
-------------------------------
Stephen J. Giurlando
Vice President
6
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the issue by Anteon Corporation of it's
12% Senior Subordinated Notes due 2009, we hereby consent that reports of
examinations by Federal, State, Territorial, or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/Stephen J. Giurlando
-------------------------------
Stephen J. Giurlando
Vice President
Dated: August 6, 1999
7
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the issue by Anteon Corporation of it's
12% Senior Subordinated Notes due 2009, we hereby consent that reports of
examinations by Federal, State, Territorial, or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
IBJ WHITEHALL BANK & TRUST COMPANY
By:
------------------------------
Stephen J. Giurlando
Vice President
Dated: August 6, 1999
8
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ WHITEHALL BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
--------------
<S> <C>
ASSETS
------
1. Cash and balance due from depository institutions:
a. Non-interest-bearing balances and currency and coin ....................................................$ 21,794
b. Interest-bearing balances.................................................................................$ 24,039
2. Securities:
a. Held-to-maturity securities...............................................................................$ -0-
b. Available-for-sale securities.............................................................................$ 192,664
3. Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries and
in IBFs
Federal Funds sold and Securities purchased under agreements to resell........................................$ 90,207
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................................$ 2,045,440
b. LESS: Allowance for loan and lease losses...............................................$ 64,777
c. LESS: Allocated transfer risk reserve...................................................$ -0-
d. Loans and leases, net of unearned income, allowance, and reserve..........................................$ 1,980,663
5. Trading assets held in trading accounts.......................................................................$ 783
6. Premises and fixed assets (including capitalized leases)......................................................$ 6,188
7. Other real estate owned.......................................................................................$ -0-
8. Investments in unconsolidated subsidiaries and associated companies...........................................$ -0-
9. Customers' liability to this bank on acceptances outstanding..................................................$ 615
10. Intangible assets.............................................................................................$ 12,786
9
<PAGE>
11. Other assets..................................................................................................$ 61,758
12. TOTAL ASSETS..................................................................................................$ 2,391,497
LIABILITIES
-----------
13. Deposits:
a. In domestic offices.......................................................................................$ 722,967
(1) Noninterest-bearing ....................................................................$ 155,445
(2) Interest-bearing .........................................................................................$ 567,522
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................$ 1,111,757
(1) Noninterest-bearing ......................................................................................$ 14,819
(2) Interest-bearing .........................................................................................$ 1,096,938
14. Federal funds purchased and securities sold under agreements to repurchase
in domestic offices of the bank and of its Edge and Agreement subsidiaries,
and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase....................................$ 105,000
15. a. Demand notes issued to the U.S. Treasury..................................................................$ 3,000
b. Trading Liabilities.......................................................................................$ 468
16. Other borrowed money:
a. With a remaining maturity of one year or less.............................................................$ 25,002
b. With a remaining maturity of more than one year...........................................................$ 1,375
c. With a remaining maturity of more than three years........................................................$ 3,550
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding......................................................$ 615
19. Subordinated notes and debentures.............................................................................$ 100,000
20. Other liabilities.............................................................................................$ 68,528
21. TOTAL LIABILITIES.............................................................................................$ 2,142,262
22. Limited-life preferred stock and related surplus..............................................................$ N/A
10
<PAGE>
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................................................$ -0-
24. Common stock..................................................................................................$ 28,958
25. Surplus (exclude all surplus related to preferred stock)......................................................$ 210,319
26. a. Undivided profits and capital reserves....................................................................$ 9,707
b. Net unrealized gains (losses) on available-for-sale securities............................................$ 251
c. Accumulated net gains (losses) on cash flow hedges........................................................$ -0-
27. Cumulative foreign currency translation adjustments...........................................................$ -0-
28. TOTAL EQUITY CAPITAL..........................................................................................$ 249,235
29. TOTAL LIABILITIES AND EQUITY CAPITAL..........................................................................$ 2,391,497
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001090709
<NAME> ANTEON CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,764
<SECURITIES> 10,533
<RECEIVABLES> 102,469
<ALLOWANCES> (3,527)
<INVENTORY> 0
<CURRENT-ASSETS> 106,459
<PP&E> 24,216
<DEPRECIATION> (5,569)
<TOTAL-ASSETS> 287,107
<CURRENT-LIABILITIES> (62,857)
<BONDS> (174,727)
0
0
<COMMON> 0
<OTHER-SE> 48
<TOTAL-LIABILITY-AND-EQUITY> 287,107
<SALES> 0
<TOTAL-REVENUES> 145,609
<CGS> (128,576)
<TOTAL-COSTS> (138,961)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,312)
<INCOME-PRETAX> 1,131
<INCOME-TAX> 597
<INCOME-CONTINUING> 534
<DISCONTINUED> 0
<EXTRAORDINARY> (463)
<CHANGES> 0
<NET-INCOME> 71
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
ANTEON CORPORATION
OFFER TO EXCHANGE $100,000,000 OF ITS
12% SENIOR SUBORDINATED NOTES DUE 2009
(THE "EXCHANGE NOTES")
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR $100,000,000 OF ITS OUTSTANDING
12% SENIOR SUBORDINATED NOTES DUE 2009
(THE "INITIAL NOTES")
PURSUANT TO THE PROSPECTUS, DATED , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE
EXTENDED (THE "EXPIRATION DATE").
The Exchange Agent for the Exchange Offer is:
IBJ WHITEHALL BANK & TRUST COMPANY
BY REGISTERED OR CERTIFIED MAIL:
IBJ Whitehall Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
Attn: Reorganization Operations Department
BY HAND OR OVERNIGHT DELIVERY:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Attn: Securities Processing Window, Subcellar One, (SC-1)
BY FACSIMILE FOR ELIGIBLE INSTITUTIONS:
(212) 858-2611
FOR CONFIRMATION AND/OR INFORMATION CALL:
(212) 858-2103
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
-------------------------
<PAGE>
List below the Initial Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amount of Initial Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
DESCRIPTION OF INITIAL NOTES (1) (2) (3)
- ---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
OF INITIAL
NOTES
NAME(S) AND ADDRESS(ES) OF REGISTERED PRINCIPAL TENDERED
HOLDER(S) CERTIFICATE AMOUNT OF (IF LESS THAN
(PLEASE FILL IN, IF BLANK) NUMBER(S)* INITIAL NOTES ALL)**
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by such Initial Notes.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1999 (the "Prospectus"), of Anteon Corporation,
a Virginia corporation (the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal" or this "Letter"), which together constitute the
Company's offer (the "Exchange Offer") to exchange up to $100,000,000 aggregate
principal amount of its 12% Senior Subordinated Notes due 2009 (the "Exchange
Notes") for a like principal amount of the Company's issued and outstanding 12%
Senior Subordinated Notes due 2009 (collectively, the "Initial Notes").
The undersigned has completed the appropriate boxes above and below and
signed this Letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
This Letter is to be used either if certificates of Initial Notes are to be
forwarded herewith or if delivery of Initial Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company, pursuant to the procedures set forth in "The Exchange Offer--
Procedures for Tendering Initial Notes" in the Prospectus. Delivery of this
Letter and any other required documents should be made to the Exchange Agent.
Delivery of documents to a book-entry transfer facility does not constitute
delivery to the Exchange Agent.
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Initial
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering Initial
Notes--Guaranteed Delivery Procedure." See Instruction 1.
/ /CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________ / / The Depository Trust Company
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
2
<PAGE>
/ /CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ___________________________________________________
Name of Eligible Institution that Guaranteed Delivery __________________________
If delivered by book-entry transfer:
Account Number _________________________________________________________________
Date of execution of Notice of Guaranteed Delivery _____________________________
/ /CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is acquiring the Exchange Notes in the ordinary course of business of the
undersigned, that it is not engaged in, and does not intend to engage in, or has
no arrangement or understanding with any person to participate in, a
distribution of Exchange Notes and that it is not an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act"). If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Initial Notes that were
acquired as a result of market-making activities or other trading activities, it
may be deemed to be an "underwriter" within the meaning of the Securities Act
and must acknowledge that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Initial Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Initial Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Initial Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Initial Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the sale, assignment and transfer of the Initial Notes tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the Company's belief, based on interpretations by the staff of the
Securities and Exchange Commission (the "SEC") to third parties in unrelated
transactions, that the Exchange Notes issued in exchange for the Initial Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and are not participating in, and do not
intend to participate in, the distribution of such Exchange Notes. The
undersigned acknowledges that any holder of Initial Notes using the Exchange
Offer to participate in a distribution of the Exchange Notes (i) cannot rely on
the position of the staff of the SEC enunciated in its interpretive letter with
respect to Exxon Capital Holdings Corporation (available April 13, 1989) or
similar letters and (ii) must comply with the registration and prospectus
requirements of the Securities Act in connection with a secondary resale
transaction.
The undersigned represents that (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the holder,
(ii) such holder or such other person has no arrangement or understanding with
any person to participate in the distribution of such Exchange Notes within the
meaning of the Securities Act and is not participating in, and does not intend
to participate in, the distribution of such Exchange Notes within the meaning of
the Securities Act, and (iii) such holder or such other person is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or,
if such holder or such other person is an affiliate, such holder or such other
person will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable.
The undersigned, if a California resident, hereby further represents and
warrants that the undersigned (or the beneficial owner of the Initial Notes
tendered hereby, if not the undersigned) (i) is a bank, savings and loan
association, trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing trust (other
than a pension or profit-sharing trust of the Company, a self-employed
individual retirement plan, or individual retirement account), or a corporation
which has a net worth on a consolidated basis according to its most recent
audited financial statement of not less than $14,000,000, and (ii) is acquiring
the Exchange Notes for its own account for
4
<PAGE>
investment purposes (or for the account of the beneficial owner of such Exchange
Notes for investment purposes).
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the instructions
contained in this Letter.
The undersigned understands that tenders of the Initial Notes pursuant to
any one of the procedures described under "The Exchange Offer--Procedures for
Tendering Initial Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer," the
Company may not be required to accept for exchange any of the Initial Notes
tendered. Initial Notes not accepted for exchange or withdrawn will be returned
to the undersigned at the address set forth below unless otherwise indicated
under "Special Delivery Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the Exchange Notes (and, if applicable,
substitute certificates representing Initial Notes for any Initial Notes not
exchanged) in the name of the undersigned. Similarly, unless otherwise indicated
under the box entitled "Special Delivery Instructions" below, please deliver the
Exchange Notes (and, if applicable, substitute certificates representing Initial
Notes for any Initial Notes not exchanged) to the undersigned at the address
shown above in the box entitled "Description of Initial Notes."
THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN INITIAL
NOTES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS WHOSE
NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO SUCH INITIAL NOTES
AS OF THE DATE OF TENDER OF SUCH INITIAL NOTES TO EXECUTE AND DELIVER THE LETTER
OF TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD. ACCORDINGLY, FOR PURPOSES
OF THIS LETTER OF TRANSMITTAL, THE TERM "HOLDER" SHALL BE DEEMED TO INCLUDE SUCH
BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF INITIAL
NOTES" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER
TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES AS SET
FORTH IN SUCH BOX ABOVE.
5
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
<TABLE>
<S> <C>
Dated:
SIGNATURE(S) OF OWNER(S)/OR AUTHORIZED
SIGNATORY DATE
Area Code and Telephone Number
</TABLE>
If a holder is tendering any Initial Notes, this Letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Initial Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Names __________________________________________________________________________
_______________________________________
(PLEASE TYPE OR PRINT)
Capacity: ______________________________________________________________________
_______________________________________
Address ________________________________________________________________________
_______________________________________
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: _______________________________________________________
(AUTHORIZED SIGNATURE)
________________________________________________________________________________
(TITLE)
________________________________________________________________________________
(NAME OF FIRM)
Dated: _________________________________________________________________________
6
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Exchange Notes are to be issued
in the name of and sent to someone other than the person or persons whose
signature(s) appear on this Letter above.
Issue: Exchange Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
Social Security Number: ____________________________________________________
(COMPLETE SUBSTITUTE FORM W-9)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Exchange Notes are to be sent
to someone other than the person or persons whose signature(s) appear(s) on
this Letter above or to such person or persons at an address other than
shown in the box entitled "Description of Initial Notes" on this Letter
above.
Mail: Exchange Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
- -----------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (IN EACH CASE, TOGETHER WITH
THE CERTIFICATE(S) FOR INITIAL NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF
SUCH INITIAL NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND INITIAL NOTES; GUARANTEED DELIVERY PROCEDURE.
This Letter is to be used to forward, and must accompany, all certificates
representing Initial Notes tendered pursuant to the Exchange Offer unless such
certificates are accompanied by an Agent's Message (as defined in the
Prospectus) in which case you need not submit this Letter to the Exchange Agent.
Certificates representing the Initial Notes in proper form for transfer (or a
confirmation of book-entry transfer of such Initial Notes into the Exchange
Agent's account at the book-entry transfer facility) must be received by the
Exchange Agent at its address set forth herein on or before the Expiration Date.
A tender will not be deemed to have been timely received when the tendering
holder's properly completed and duly signed Letter or an Agent's Message
accompanied by the Initial Notes is mailed prior to the Expiration Date but is
received by the Exchange Agent after the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER, THE INITIAL NOTES AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY.
If a holder desires to tender Initial Notes and such holder's Initial Notes
are not immediately available or time will not permit such holder's Letter of
Transmittal, Initial Notes (or a confirmation of book-entry transfer of Initial
Notes into the Exchange Agent's account at the book-entry transfer facility with
an Agent's Message) or other required documents to reach the Exchange Agent on
or before the Expiration Date, such holder may still tender in the Exchange
Offer if:
(a) the tender is made through an Eligible Institution (as defined
below);
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by us (by facsimile transmission, mail or
hand delivery), setting forth your name and address as holder of the Initial
Notes and the amount of Initial Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three business days after
the Expiration Date the certificates for all physically tendered Initial
Notes, in proper form for transfer, or a book-entry confirmation with an
Agent's Message, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) the certificates for all physically tendered Initial Notes, in
proper form for transfer, or a book-entry confirmation as the case may be,
and all other documents required by this Letter of Transmittal, are received
by the Exchange Agent within three business days after the Expiration Date.
See "The Exchange Offer--Procedures for Tendering Initial Notes" in the
Prospectus.
2. WITHDRAWALS.
Any holder who has tendered Initial Notes may withdraw the tender by
delivering written notice of withdrawal (which may be sent by telegram,
facsimile (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier)) to the Exchange Agent prior to the close of
business on the Expiration Date and prior to acceptance for exchange thereof by
us. For a withdrawal to be effective, a written notice of withdrawal must (i)
specify the name of the person having tendered the Initial Notes to be withdrawn
(the "Depositor"), (ii) identify the Initial Notes to be withdrawn (including
the certificate number or numbers and principal amount of such Initial Notes),
(iii) signed by the holder in the same manner as the original signature on the
Letter of Transmittal by which such Initial Notes were tendered or
8
<PAGE>
as otherwise set forth in Instruction 3 below (including any required signature
guarantees), or be accompanied by documents of transfer sufficient to have the
trustee for the indenture governing the Initial Notes register the transfer of
such Initial Notes pursuant to the terms of such indenture into the name of the
person withdrawing the tender and (iv) specify the name in which any such
Initial Notes are to be registered, if different from that of the Depositor. If
Initial Notes have been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
participant's account at the book-entry transfer facility to be credited, if
different from that of the Depositor, with the withdrawn Initial Notes or
otherwise comply with the book-entry transfer facility's procedures. See "The
Exchange Offer--Withdrawal of Tenders" in the Prospectus.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Initial Notes
tendered hereby, the signature must correspond with the name as written on the
face of the certificates without alteration, enlargement or any change
whatsoever.
If this Letter is signed by a participant in DTC, the signature must
correspond with the name as it appears on the security position listing as the
holder of the Initial Notes.
If this Letter or any Initial Notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, evidence
satisfactory to us of their authority to so act must also be submitted with the
Letter of Transmittal.
If any tendered Initial Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
The signatures on this Letter or a notice of withdrawal, as the case may be,
must be guaranteed by a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor" institution within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended--(each, an "Eligible Institution"),
unless the Initial Notes are tendered: (i) by a registered holder (or by a
participant in DTC whose name appears on a security position listing as the
owner) who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on this Letter and the Exchange Notes are being
issued directly to such registered holder (or deposited into the participant's
account at DTC), or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Initial Notes should indicate in the applicable box the
name and address to which Exchange Notes issued pursuant to the Exchange Offer
are to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, any Exchange Notes will be issued
in the name of, and delivered to, the name or address of the person signing this
Letter and any Initial Notes not accepted for exchange will be returned to the
name or address of the person signing this Letter.
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9.
Under the federal income tax laws, payments that may be made by the Company
on account of Exchange Notes issued pursuant to the Exchange Offer may be
subject to backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter and either (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the
9
<PAGE>
holder has not been notified by the Internal Revenue Service (the "IRS") that
the holder is subject to backup withholding as a result of failure to report all
interest or dividends or (ii) the IRS has notified the holder that the holder is
no longer subject to backup withholding; or (b) provide an adequate basis for
exemption. If the tendering holder has not been issued a TIN and has applied for
one, or intends to apply for one in the near future, such holder should write
"Applied For" in the space provided for the TIN in Part I of the Substitute Form
W-9, sign and date the Substitute Form W-9, and sign the Certification of Payee
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I,
the Company (or the Paying Agent under the Indenture governing the Exchange
Notes) shall retain 31% of payments made to the tendering holder during the
sixty (60) day period following the date of the Substitute Form W-9. If the
holder furnishes the Exchange Agent or the Company with his or her TIN within
sixty (60) days after the date of the Substitute Form W-9, the Company (or the
Paying Agent) shall remit such amounts retained during the sixty (60) day period
to the holder and no further amounts shall be retained or withheld from payments
made to the holder thereafter. If, however, the holder has not provided the
Exchange Agent or the Company with his or her TIN within such sixty (60) day
period, the Company (or the Paying Agent) shall remit such previously retained
amounts to the IRS as backup withholding. In general, if a holder is an
individual, the taxpayer identification number is the Social Security number of
such individual. If the Exchange Agent or the Company is not provided with the
correct taxpayer identification number, the holder may be subject to a $50
penalty imposed by the IRS. Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, such holder must submit a statement (generally,
IRS Form W-8), signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. For
further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if Initial Notes are registered in more than one name), consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Initial Notes to be deemed invalidly tendered, but may require the Company (or
the Paying Agent) to withhold 31% of the amount of any payments made on account
of the Exchange Notes. Backup withholding is not an additional federal income
tax. Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Initial Notes to it or its order pursuant to the Exchange Offer. If, however,
Exchange Notes and/or substitute Initial Notes not exchanged or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Initial Notes tendered
hereby, or if tendered Initial Notes are registered in the name of any person
other than the person signing this Letter, or if a transfer tax is imposed for
any reason other than the transfer of Initial Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Initial Notes specified in this Letter.
10
<PAGE>
7. WAIVER OF CONDITIONS.
Conditions enumerated in the Prospectus may be waived by the Company, in
whole or in part, at any time from time to time in its reasonable discretion.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Initial Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Initial Notes
for exchange.
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. INADEQUATE SPACE.
If the space provided herein is inadequate, the aggregate principal amount
of Initial Notes being tendered and the certificate number or numbers (if
available) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter.
10. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES.
If any certificate has been lost, mutilated, destroyed or stolen, the holder
should promptly notify the IBJ Whitehall Bank & Trust Company at the telephone
number indicated above. The holder will then be instructed as to the steps that
must be taken to replace the certificate(s). This Letter of Transmittal and
related documents cannot be processed until the Initial Notes have been
replaced.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the IBJ
Whitehall Bank & Trust Company at the address and telephone number indicated
above.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: ANTEON CORPORATION
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--Taxpayer Identification Number ------------------------------------
FORM W-9 Enter your taxpayer identification Social Security Number
Department of the Treasury number in the appropriate box. For most OR
Internal Revenue Service individuals, this is your social ------------------------------------
security number. If you do not have a Employer Identification Number
number, see how to obtain a "TIN" in
the enclosed Guidelines.
NOTE: If the account is in more than
one name, see the chart on page 2 of
the enclosed Guidelines to determine
what number to give.
--------------------------------------------------------------------------------
PART II--For Payees Exempt From Backup Withholding (see enclosed Guidelines)
--------------------------------------------------------------------------------
Payer's Request for CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Taxpayer Identification (1) the number shown on this form is my correct Taxpayer Identification Number
Number (TIN) and (or I am waiting for a number to be issued to me), and
Certification (2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends or the
IRS has notified me that I am no longer subject to backup withholding.
--------------------------------------------------------------------------------
Signature Date
--------------------------------------- ---------------------------------------
- -------------------------------------------------------------------------------------------------------------
CERTIFICATION GUIDELINES--YOU MUST CROSS OUT ITEM (2) OF THE ABOVE CERTIFICATION IF YOU HAVE BEEN NOTIFIED
BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDER REPORTING OF INTEREST OR DIVIDENDS ON
YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING YOU
RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT
CROSS OUT ITEM (2).
--------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification Number
has not been issued to me, and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the Exchange Notes shall be retained until I
provide a Taxpayer Identification Number to the payer and that, if I do not
provide my Taxpayer Identification Number within sixty (60) days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31 percent of all reportable payments made to me thereafter will be withheld
and remitted to the Internal Revenue Service until I provide a Taxpayer
Identification Number.
SIGNATURE ________________________________________________ DATE _______________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
12
<PAGE>
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
13
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF OUTSTANDING
12% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
12% SENIOR SUBORDINATED NOTES DUE 2009
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OF
ANTEON CORPORATION
Registered holders of outstanding 12% Senior Subordinated Notes due 2009
(the "Initial Notes") who wish to tender their Initial Notes in exchange for a
like principal amount of 12% Senior Subordinated Notes due 2009 (the "Exchange
Notes") and whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and Letter of Transmittal (and any other documents
required by the Letter of Transmittal) to IBJ Whitehall Bank & Trust Company
(the "Exchange Agent") prior to the Expiration Date, may use this Notice of
Guaranteed Delivery or one substantially equivalent hereto. This Notice of
Guaranteed Delivery may be delivered by hand or sent by facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) or letter to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering Initial Notes" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
IBJ WHITEHALL BANK & TRUST COMPANY
BY REGISTERED OR CERTIFIED MAIL:
IBJ Whitehall Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
Attn: Reorganization Operations Department
BY HAND OR OVERNIGHT DELIVERY:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Attn: Securities Processing Window, Subcellar One, (SC-1)
BY FACSIMILE FOR ELIGIBLE INSTITUTIONS:
(212) 858-2611
FOR CONFIRMATION AND/OR INFORMATION CALL:
(212) 858-2103
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Initial Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated , 1999 of Anteon Corporation, receipt of which is hereby
acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT
APPEARS ON THE 12%
SENIOR SUBORDINATED CERTIFICATE NUMBER(S) AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF
NOTES DUE 2009 ("INITIAL OF AMOUNT REPRESENTED BY INITIAL NOTES
NOTES") (PLEASE PRINT) INITIAL NOTES TENDERED INITIAL NOTES TENDERED
<S> <C> <C> <C>
- ---------------------------------- ----------------- ---------------- ---------------
- ---------------------------------- ----------------- ---------------- ---------------
- ---------------------------------- ----------------- ---------------- ---------------
- ---------------------------------- ----------------- ---------------- ---------------
- ---------------------------------- ----------------- ---------------- ---------------
</TABLE>
2
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office, branch, agency or
correspondent in the United States, hereby guarantees to deliver to the Exchange
Agent at one of its addresses set forth above, the certificates representing the
Initial Notes, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees, and
any other documents required by the Letter of Transmittal within three New York
Stock Exchange, Inc. trading days after the date of execution of this Notice of
Guaranteed Delivery.
NAME OF FIRM: __________________________________________________________________
(AUTHORIZED SIGNATURE)
ADDRESS: ________________________________TITLE: ________________________________
______________________________________________ NAME: ___________________________
(ZIP
CODE) (PLEASE TYPE OR PRINT)
AREA CODE AND TELEPHONE NUMBER: _____________________ DATE: ____________________
NOTE: DO NOT SEND INITIAL NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. INITIAL
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
