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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
QUESTECH, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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QuesTech, Inc.
7600A Leesburg Pike
Falls Church, VA 22043
October 9, 1998
To Our Shareholders:
On behalf of the Board of Directors of QuesTech, Inc. (the
"Company"), we cordially invite you to attend a Special Meeting of
Shareholders on Wednesday, November 11, 1998, at 10 A.M. at the offices of
the Company located at 7600A Leesburg Pike, Falls Church, Virginia 22043 (the
"Special Meeting"). The formal Notice of Special Meeting and Proxy Statement,
which are contained in the following pages, outline the action to be taken by
the shareholders at the Special Meeting.
At the Special Meeting, you will be asked to consider and vote upon
a proposal to approve a merger involving the Company and CACI International
Inc, a Delaware corporation ("CACI") (the "Merger"). Upon shareholder
approval and satisfaction of certain other conditions for consummation of the
Merger pursuant to the Agreement and Plan of Merger, dated as of July 30,
1998, as amended as of October 6, 1998 (the "Merger Agreement"), shareholders
will receive, in cash, $18.13 for each share of Company common stock, $.05
par value (the "Common Stock") (consisting of $18.375 per share less an
adjustment of $.245 for disposition of the Company's packaging subsidiary,
QuesTech Packaging, Inc.). After the consummation of the Merger, shareholders
will have no ownership interest in either the Company or CACI.
Specifically, shareholders will be asked to vote at the Special
Meeting to approve and adopt the Merger and the Merger Agreement among CACI,
CACI Acquisition Corporation, and the Company. The Merger Agreement provides
for the merger of Acquisition Corporation with and into the Company, with the
Company as the surviving corporation, and the conversion of each issued and
outstanding share of the Common Stock into the right to receive payment, in
cash, of $18.13 per share in accordance with the terms of the Merger
Agreement.
The affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Common Stock is required to approve and
adopt the Merger and the Merger Agreement.
Your Board of Directors, after review and consideration of the
proposed Merger, and having received a written opinion from Legg Mason Wood
Walker, Incorporated, that the consideration to be received by the
shareholders pursuant to the Merger Agreement is fair to shareholders from a
financial point of view, has unanimously approved the Merger as being in the
best interests of the Company and its shareholders and recommends that you
vote in favor of the Merger and the Merger Agreement.
Please sign and return the enclosed proxy card in the envelope
provided as soon as possible so your shares can be voted at the meeting in
accordance with your instructions.
Sincerely yours,
/s/Vincent L. Salvatori
----------------------------
VINCENT L. SALVATORI
Chairman of the Board and
Chief Executive Officer
/s/Gerald F. Mayefskie
----------------------------
GERALD F. MAYEFSKIE
President and
Chief Operating Officer
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QuesTech, Inc.
7600A Leesburg Pike
Falls Church, Virginia 22043
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Wednesday, November 11, 1998 at 10:00 A.M.
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To our Shareholders:
A Special Meeting of Shareholders of QuesTech, Inc. (the "Company")
will be held on Wednesday, November 11, 1998, at 10:00 A.M., local time, at the
offices of the Company located at 7600A Leesburg Pike, Falls Church, Virginia
22043 for the following purposes:
1. To consider and vote upon a proposal to approve and adopt a
merger involving the Company and CACI International Inc, a
Delaware corporation ("CACI") and the Agreement and Plan of
Merger, dated as of July 30, 1998, as amended as of October 6,
1998 (the "Merger Agreement") among CACI, CACI Acquisition
Corporation, a Delaware Corporation, and the Company. The Merger
Agreement provides for the merger of Acquisition Corporation with
and into the Company, with the Company as the surviving
corporation, and the conversion of each issued and outstanding
share of the Common Stock into the right to receive payment, in
cash, of $18.13 for each share of Company common stock, $.05 par
value.
2. To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE INDICATE VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY, SIGN AND PROMPTLY RETURN THE COMPLETED PROXY
IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
The close of business on September 30, 1998 has been fixed as the
record date for the determination of the shareholders entitled to notice of and
to vote at the Special Meeting of Shareholders and at any adjournment thereof.
If you have a disability which requires accommodation at the meeting, please
call 703-760-1016; requests must be received by November 4, 1998.
By Order of the Board of Directors,
/s/Vincent L. Salvatori
---------------------------------
Vincent L. Salvatori
Chairman of the Board and
Chief Executive Officer
Falls Church, Virginia
October 9, 1998
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QuesTech, Inc.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
November 11, 1998
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This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of QuesTech, Inc. (the "Company" or
"QuesTech") of proxies for use at the Special Meeting of Shareholders to be
held on November 11, 1998, at 10:00 A.M., local time, at the offices of the
Company located at 7600A Leesburg Pike, Falls Church, Virginia 22043, and all
adjournments thereof (the "Special Meeting").
At the Special Meeting, shareholders will be asked to (i) consider
and vote upon a proposal to approve and adopt the merger and the Agreement
and Plan of Merger, dated as of July 30, 1998, as amended as of October 6,
1998 (the "Merger Agreement") among CACI International Inc, a Delaware
Corporation. ("CACI"), CACI Acquisition Corporation, a Delaware Corporation
("Acquisition Corporation"), and the Company; and (ii) to transact such other
business as may properly come before the Special Meeting. The Merger
Agreement provides for the merger of Acquisition Corporation with and into
the Company, with the Company as the surviving corporation, and the
conversion of each issued and outstanding share of the Company's common
stock, $.05 par value (the "Common Stock") into the right to receive payment,
in cash, of $18.13 per share (the "Adjusted Merger Consideration"),
consisting of $18.375 per share (the "Merger Consideration") less an
adjustment of $.245 for disposition of the Company's packaging subsidiary,
QuesTech Packaging, Inc. (the "Merger"). The total value of the Merger is
$44,492,000, which includes $13,818,000 of indebtedness assumed by CACI.
If the Merger is consummated, each share will be converted into the
right to receive, in cash, the Adjusted Merger Consideration. The receipt of
the Adjusted Merger Consideration will be a taxable transaction for United
States federal income tax purposes and may also be a taxable transaction
under applicable state, local, foreign and other tax laws.
This Proxy Statement, Notice of Meeting and proxy card are first
being mailed to shareholders on or about October 9, 1998.
Whether or not you expect to be personally present at the meeting,
you are requested to fill in, sign, date and return the enclosed proxy card.
Any person giving such proxy has the right to revoke it at any time before it
is voted by giving notice to the Secretary of the Company. Unless a proxy is
revoked prior to the voting thereof, all shares represented by a duly
executed proxy in the accompanying form will be voted as marked thereon or,
if no contrary instruction is given, in accordance with the recommendations
of management.
The close of business on September 30, 1998, has been fixed as the
record date for the determination of shareholders entitled to vote at the
Special Meeting. As of the record date, there were outstanding and entitled
to be voted at such meeting 1,925,904 shares of Common Stock. These shares
were held of record by approximately 218 shareholders. Each shareholder is
entitled to one vote on each matter that comes before the meeting for each
share of Common Stock held by such shareholder on the record date.
The affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Common Stock is required to approve and
adopt the Merger and the Merger Agreement. Certain shareholders and officers
of the Company have entered into agreements with CACI International Inc
whereby they have agreed to vote in favor of the Merger. Approximately 21% of
the Company's issued and outstanding shares are covered by such agreements.
This proxy solicitation is made by the Board of Directors of the
Company. The solicitation will be by mail and the expense thereof will be
paid by the Company. In addition, the solicitation of proxies may be made by
telephone or telegram by directors, officers or regular employees of the
Company. The Company may also request brokerage firms to solicit proxies of
beneficial owners and the expense thereof will be paid by the Company upon
request of such brokerage firms.
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TABLE OF CONTENTS
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I. SUMMARY .............................................................................................. 1
THE MERGER.......................................................................................... 1
The Companies..................................................................................... 1
Background........................................................................................ 1
Recommendation of the Board of Directors and Reasons Therefor..................................... 2
Selected Information about the Merger............................................................. 2
Opinion of Financial Advisor...................................................................... 3
Regulatory Approvals.............................................................................. 3
FEDERAL INCOME TAX CONSIDERATIONS................................................................... 3
NO DISSENTERS RIGHTS................................................................................ 4
DIVIDEND AND PRICE RANGE OF COMMON STOCK............................................................ 4
DELISTING OF COMMON STOCK........................................................................... 4
II. THE MERGER............................................................................................ 4
THE COMPANIES....................................................................................... 4
QuesTech, Inc..................................................................................... 4
CACI International Inc............................................................................ 4
CACI Acquisition Corporation...................................................................... 5
The Surviving Company............................................................................. 5
BACKGROUND.......................................................................................... 5
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER.................................... 7
The Company's business, condition and prospects................................................... 7
The offerors' business, condition and prospects................................................... 8
Opinion of Financial Advisor...................................................................... 8
Financial Factors................................................................................. 8
Terms of the Merger............................................................................... 8
Alternative Transactions.......................................................................... 8
Trading Price of the Common Stock................................................................. 8
OPINION OF THE COMPANY'S FINANCIAL ADVISOR.......................................................... 9
THE SPECIAL MEETING................................................................................. 11
CERTAIN EFFECTS OF THE MERGER....................................................................... 12
INTERESTS OF CERTAIN PERSONS IN THE MERGER.......................................................... 12
Employment Agreement.............................................................................. 12
Stock Options..................................................................................... 12
Stock Employee Compensation Trust ("SECT")........................................................ 12
Aggregate Amount To Be Received By Directors and Executive Officers.............................. 12
Directors and Officers Insurance; Limitation of Liability of Officers and Directors............... 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................... 13
THE MERGER AGREEMENT................................................................................ 14
General........................................................................................... 14
</TABLE>
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Adjusted Merger Consideration..................................................................... 15
Exchange of Share Certificates.................................................................... 15
Stock Option Plans................................................................................ 15
Representations and Warranties.................................................................... 15
Covenants......................................................................................... 15
Conditions to Consummate the Merger............................................................... 16
Termination; Fees and Expenses.................................................................... 16
Amendment; Waiver................................................................................. 17
CERTAIN REGULATORY MATTERS.......................................................................... 17
ACCOUNTING TREATMENT................................................................................ 17
III. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER................................................ 18
IV. NO DISSENTERS' RIGHTS................................................................................ 18
V. DIVIDEND AND PRICE RANGE OF COMMON STOCK............................................................. 18
VI. DELISTING OF COMMON STOCK............................................................................ 19
VII. SELECTED FINANCIAL INFORMATION....................................................................... 19
VIII.INDEPENDENT PUBLIC ACCOUNTANTS....................................................................... 21
IX. SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING.................................................... 21
X. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................................................... 21
XI. OTHER MATTERS........................................................................................ 23
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APPENDIX A Agreement and Plan of Merger
APPENDIX B Opinion of Legg Mason Wood Walker, Incorporated
APPENDIX C Affiliates' Agreements
APPENDIX D Restated Audited Financial Statements
APPENDIX E Projections
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I. SUMMARY
This summary highlights selected information from this Proxy
Statement and may not contain all of the information that is important to
you. To better understand the Merger and for a more complete description of
the legal terms thereof, you should read carefully this entire document and
the documents to which we have referred you.
THE MERGER
The Companies
QuesTech provides a broad spectrum of scientific, engineering,
research, management and support services, primarily for defense and national
security applications and, to a lesser extent, for general industrial and
commercial applications. The Company's systems engineering and related
services include signal and information processing and analysis, program
management and logistics services, electronic and information warfare design
and analysis, and related information technology, computer software and
systems integration and industrial analysis.
CACI is a holding company and its operations are conducted through
wholly-owned subsidiaries which are located in the United States and Europe.
CACI specializes in developing and integrating systems, software, and
simulation products in support of government and commercial clients worldwide.
CACI Acquisition was incorporated in Delaware on May 4, 1998 to
serve as a vehicle through which CACI could accomplish a merger with the
Company. As such, Acquisition Corporation has conducted no business. As
provided in the Merger Agreement, Acquisition Corporation will cease to exist
at the effective time of the Merger with the Company.
Background
On January 6, 1998, the Company entered into an agreement with Legg
Mason Wood Walker, Incorporated ("Legg Mason"), pursuant to which Legg Mason
was to identify and analyze alternatives which might be available to the
Company and which would result in enhanced value for the Company's
shareholders. In addition, the Company's Board of Directors instructed
management to investigate strategic alternatives for its packaging business,
QuesTech Packaging, Inc., a wholly owned subsidiary of the Company ("QTPI").
As of January 5, 1998, the closing price of the Common Stock on the NASDAQ
Stock Market was $7 per share.
Legg Mason determined that (i) because the Company did not have
significant assets (other than accounts receivable), a leveraged
recapitalization would not generate a sufficiently high value to be
attractive; (ii) because of the Company's relatively low stock price at the
time, improving its balance sheet through public or private financing (for
example, the sale of additional stock) would also fail to generate a
sufficiently high return to be attractive; and (iii) because the Company was
not in a position to pay dividends, this traditional method for returning
value to shareholders would also be unavailable for QuesTech. In view of the
foregoing, Legg Mason concluded that the most attractive option for
increasing value for the shareholders of the Company would be derived from
taking advantage of the high prices being paid for information technology
companies as a result of industry consolidation.
At its meeting of March 16, 1998, the Company's Board of Directors,
following a presentation by Legg Mason of its recommendation, decided to test
the market for interest in the Company and authorized Legg Mason to solicit
expressions of interest in the Company by distributing a descriptive
memorandum to selected potential acquirers. Twenty-seven prospects were
contacted, of which fifteen expressed interest. Four offers for the Company
were received from information technology firms. None of them were interested
in acquiring the Company's packaging business and excluded it from their
offers.
Two were cash offers for $13 and $14.50 per share. A third offer was
an exchange of the Company's Common Stock for shares of the acquiring company
valued by the offeror at $30 million. The fourth offer from CACI was
initially for $17 per share. All of the offers included the assumption of the
Company's debt. The Titan
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offer was increased to $35 million and the CACI offer was increased to
$18.375 per share, see "II. THE MERGER - BACKGROUND".
At its meetings of May 4 and May 15, 1998, the Company's Board of
Directors thoroughly considered all offers for the Company and concluded that
CACI had submitted the superior offer because it offered the highest cash
price and had the least contingencies. In making its determination, the Board
received an assessment from its financial advisor regarding the terms of each
offer and each offeror's financial capabilities. Accordingly, on May 18,
1998, CACI and the Company entered into a letter of intent which proposed a
merger involving the two companies, pursuant to which the Company's
shareholders would receive, in cash, $18.375 per share, subject to adjustment
for the disposition of QTPI. The Merger would be conditioned upon the
negotiation of a definitive agreement, disposition of QTPI and receipt of
required Board and shareholder approvals.
The Merger and the Merger Agreement which is attached to this Proxy
Statement as Appendix A were approved by the Boards of Directors of each of
the Company and CACI on July 28, 1998.
Following the CACI letter of intent, the Company received an offer
from Printpack, Inc. ("Printpack") and, on July 23, 1998, entered into a
letter of intent for the purchase by Printpack of all of the assets relating
to QTPI. However, on August 7, 1998, Printpack withdrew its offer. After
considering various options then available for the disposition of QTPI, the
Board, on August 17, 1998, resolved to proceed with the dissolution of QTPI
and the termination of its corporate existence unless QTPI management could
demonstrate financial capability to purchase QTPI pursuant to an offer that
it had previously presented. On August 31, 1998, having determined that
financing for a QTPI management offer had not been evidenced, the Company
approved the dissolution of QTPI. On September 16, 1998, a Certificate of
Dissolution of QTPI was issued by the Virginia State Corporation Commission
and its corporate existence is to be terminated prior to the Merger,
following the distribution of QTPI's assets and liabilities.
Following the approval of the dissolution of QTPI, the Company and
CACI negotiated a downward adjustment to the Merger Consideration of $.245,
see "II. THE MERGER - BACKGROUND".
Recommendation of the Board of Directors and Reasons Therefor
The Board of Directors has determined that the Merger of the Company
with Acquisition Corporation under the terms and conditions set forth in the
Merger Agreement is advisable and in your best interests and unanimously
recommends that you vote for the proposal to approve and adopt the Merger and
the Merger Agreement.
For a discussion of the factors considered by the Board of Directors
in making its recommendation, see "II. THE MERGER - RECOMMENDATION OF THE
BOARD OF DIRECTORS; REASONS FOR THE MERGER".
Selected Information about the Merger
The Merger Agreement is attached as Appendix A to this Proxy
Statement. We encourage you to read the Merger Agreement as it is the legal
document that governs the Merger.
Consideration. In the Merger, QuesTech shareholders will be entitled to
receive cash for their shares in the amount of $18.13 per share, consisting
of $18.375 per share less an adjustment of $.245 for disposition of QTPI. As
a result of the Merger, QuesTech shareholders will hold no interest in CACI
Acquisition Corporation or the Company.
Effective Time of the Merger. Under Virginia law, the Merger will be
effective when a certificate of merger is filed with the Virginia State
Corporation Commission, unless the Company and CACI specify a later time (the
"Effective Time"). The Company expects the Merger will be completed as soon
as practicable following the approval by the shareholders of the Company, if
all other conditions have been satisfied. The Merger Agreement provides that
the Merger must be consummated by November 15, 1998, unless extended by
mutual agreement.
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Other Interests of the Company's Officers, Directors and Certain Shareholders
in the Merger. Officers, directors and certain shareholders of the Company
will receive benefits as a result of the Merger which are different from
benefits you will receive. You may want to consider these benefits in
deciding whether to vote in favor of the transaction.
For a discussion of the benefits which will be received by certain
officers, directors and shareholders, see "II. THE MERGER - INTERESTS OF
CERTAIN PERSONS IN THE MERGER."
Terms of the Merger Agreement. The Merger Agreement requires that a number of
conditions must be met before the Merger is completed, including, among
others, the approval of the Merger and Merger Agreement by the shareholders
of the Company and the disposition of QTPI.
The Merger Agreement also provides that CACI and the Company may
agree to terminate the Merger Agreement before the Merger has been completed,
and either CACI or the Company may terminate the Merger Agreement under
certain circumstances. If the Company terminates the Merger Agreement because
the Company's Board of Directors withdraws or adversely changes its
recommendation to shareholders that they vote in favor of the Merger or if
the Company enters into an agreement for the acquisition of the Company by a
third party, the Company must pay to CACI $1 million to compensate CACI for
its expenses incurred and effort expended in preparing for the Merger.
For a further discussion of the conditions of the Merger and
termination provisions in the Merger Agreement, see "II. THE MERGER - THE
MERGER AGREEMENT" and the Agreement and Plan of Merger attached as Appendix A.
Opinion of Financial Advisor
Legg Mason has acted as financial advisor to the Company in
connection with the Merger and delivered to the Board of Directors an oral
opinion on May 15, 1998, which was confirmed by a written opinion dated July
30, 1998, to the effect that, as of the date of the opinion and based upon
and subject to certain matters stated in the opinion, the consideration to be
received by the shareholders of the Company pursuant to the Merger is fair
from a financial point of view to the shareholders of the Company. The full
text of the written opinion of Legg Mason, dated July 30, 1998, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached as Appendix B to this Proxy. The opinion of Legg
Mason is directed to the Board of Directors of the Company and addresses only
the fairness from a financial point of view of the consideration to be
received by the Company's shareholders pursuant to the Merger and does not
address the merits of the underlying decision by the Company to engage in the
transaction and does not constitute a recommendation to any shareholder as to
how a shareholder should vote at the Special Meeting.
Regulatory Approvals
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") requires both parties to file premerger notifications with the
Antitrust Division of the Department of Justice (the "Antitrust Division")
and the Federal Trade Commission (the "FTC") and observe the required waiting
period before consummating the acquisition. CACI and the Company each filed a
premerger notification with the FTC and the Antitrust Division and, on
September 14, 1998, received notice that the FTC and the Antitrust Division
had granted an early termination of the premerger notification waiting
period, effective on that date. Termination of the waiting period means that
the parties are free to complete the Merger consistent with the HSR Act.
FEDERAL INCOME TAX CONSIDERATIONS
The receipt of cash for the Company's shares pursuant to the Merger
Agreement will be a taxable transaction for federal income tax purposes and
may also be a taxable transaction under applicable state, local, foreign and
other tax laws. You should consult your own tax advisors regarding the United
States federal income tax consequences of the Merger, as well as any tax
consequences under the laws of any state or other jurisdiction.
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The Company will not recognize any gain or loss as a result of the Merger for
United States federal income tax purposes. See "III. CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
NO DISSENTERS' RIGHTS
Under Virginia law, in connection with a merger of the type
involving the Company, shareholders do not have a right of dissent to obtain
a judicial appraisal of their shares. Thus, if the Merger is consummated,
shares which you own will be canceled and you will only be entitled to
receive the Adjusted Merger Consideration. For a full discussion of
dissenters' rights, see "IV. NO DISSENTERS RIGHTS"
DIVIDEND AND PRICE RANGE OF COMMON STOCK
The Company has not paid dividends on the Common Stock. The Common
Stock of the Company is listed on the NASDAQ Stock Market. The high and low
sales prices of the Common Stock on May 18, 1998, the date preceding public
announcement of the proposed Merger, were $15.0625 and $13.875, respectively.
DELISTING OF COMMON STOCK
After the effectiveness of the Merger, the Common Stock, which
trades under the symbol "QTEC", will be delisted from the NASDAQ Stock Market
and deregistered for purposes of the Securities Exchange Act of 1934.
II. THE MERGER
This section of the Proxy Statement, including the part entitled
"AGREEMENT AND PLAN OF MERGER," describes certain aspects of the Merger. To
the extent that it relates to the Merger Agreement, the following description
does not purport to be complete and is qualified in its entirety by reference
to the Merger Agreement, which is attached hereto as Appendix A. All
shareholders are urged to read the Merger Agreement in its entirety.
THE COMPANIES
QuesTech, Inc.
General. QuesTech was incorporated as Quest Research Corporation under the
laws of the Commonwealth of Virginia on December 31, 1968. Its name was
changed to QuesTech, Inc. on August 26, 1981. Since its inception, the
Company has provided its customers with leading edge systems and services
designed for highly specialized applications. The Company provides a broad
spectrum of scientific, engineering, research, management and support
services, primarily for defense and national security applications and, to a
lesser extent, for general industrial and commercial applications. The
Company's systems engineering and related services include signal and
information processing and analysis, program management and logistics
services, electronic and information warfare design and analysis, and related
information technology, computer software and systems integration and
industrial analysis.
Address. The Company's principal executive offices are located at 7600A
Leesburg Pike, Falls Church, VA 22043.
CACI International Inc
General. CACI was organized as a Delaware corporation under the name of CACI
Worldwide, Inc. on October 8, 1985. CACI is a holding company whose
operations are conducted through wholly-owned subsidiaries which are located
in the United States and Europe. CACI's business was founded in 1962 in
simulation technology, and has strategically diversified within the
information technology industry since. CACI specializes in developing and
integrating systems, software, and simulation products in support of
government and commercial clients worldwide. CACI delivers client solutions
for systems integration, year 2000 conversion, information
assurance/security, re-
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engineering, electronic commerce, intelligent document management, product
data management, software development and reuse, telecommunications, and
market analysis.
Address. The Company's principal executive offices are located at 1100 North
Glebe Road, Arlington, VA 22201.
CACI Acquisition Corporation
General. Acquisition Corporation was incorporated in Delaware on May 4, 1998
to serve as a vehicle through which CACI could accomplish a merger with the
Company. As such, Acquisition Corporation has conducted no business. As
provided in the Merger Agreement, Acquisition Corporation will cease to exist
at the effective time of the Merger with the Company.
Address. The Company's principal executive offices are located at 1100 North
Glebe Road, Arlington, VA 22201.
The Surviving Company
General. Upon consummation of the Merger, Acquisition Corporation will have
been merged into and with the Company, which will be the surviving
corporation and which will thereafter be a wholly-owned subsidiary of CACI.
Shareholders of QuesTech will not have any ownership interest in CACI
resulting from this Merger.
Executive Officers and Directors. The executive officers of the Company
following the Merger will be the current executive officers (with the
exception of Messrs. Salvatori, O'Connell, Rivera and Stankosky). All of the
Company's current directors will resign when the Merger occurs and will be
replaced with appointees of CACI.
BACKGROUND
During the first half of 1997, management of the Company, at the
direction of and in consultation with the Company's Board of Directors, began
analyzing various strategies for enhancing long-term shareholder value. These
strategies initially concentrated on selecting a suitable method for
separating the Company's packaging and information technology businesses for
financial reporting purposes so that each of these businesses could be
separately evaluated and valued by investors. It was believed that the market
price for the Common Stock would be favorably impacted if the results of
operations of the packaging business were no longer combined with the results
of operations of the information technology business.
In the early fall of 1997, the Company received from Modern
Technologies Corporation, a privately-held company ("MTC"), an unsolicited
expression of interest in a business transaction. During the fourth quarter
of 1997 and early 1998, MTC indicated an interest in making an offer for the
outstanding shares of the Company at a price of $11 per share if the
Company's Board of Directors would be prepared to recommend such an offer to
the Company's shareholders.
During the final weeks of 1997 and early 1998, the Board considered
the MTC expression of interest and determined that the Company's operations
would not benefit from a combination with the operations of MTC because MTC's
products and services were not complementary to the Company's very
sophisticated and sensitive "high tech" products and services which are
furnished to a very specialized customer base in the defense and intelligence
communities. Moreover, the Board believed that the suggested per share price
grossly understated the actual value of the Company.
During this same period, the Board considered whether, and
ultimately determined that, it would be in the best interest of the Company
to select a financial advisor for the Company for the primary purposes of
preparing an objective, market-based evaluation of the Company and suggesting
alternatives for enhancing long-term shareholder value. By agreement dated
January 6, 1998, Legg Mason was engaged as the Company's financial advisor.
During January and February, 1998, as part of management's review
with Legg Mason of the various strategic alternatives to enhancing long-term
shareholder value, it became apparent that there were significant
5
<PAGE>
difficulties and costs associated with certain alternatives. Due to the
Company's lack of hard assets, it appeared that a leveraged recapitalization
would not generate sufficiently high value to be attractive. Also,
strengthening the Company's balance sheet by reducing debt through the
issuance of new stock appeared unattractive because of the low market price
of the Common Stock. Moreover, a spin-off of QTPI was problematic because
QTPI lacked sufficient financial resources to operate independently of the
Company. Finally, based on the projected capital requirements of the
Company's businesses, the payment of a dividend was not considered a
realistic possibility for the foreseeable future.
During this same period, Legg Mason reviewed recent merger and
acquisition activity in the federal government and commercial information
technology sectors in order to determine an appropriate range within which
the Company's value should fall if the Company's information technology
business were to be made available for purchase. On this basis, Legg Mason
concluded that recent merger and acquisition activity in the information
technology sector would suggest a market value for the Company in a range of
40% to 70% of Company revenues.
By letter dated February 3, 1998, Titan Corporation (a New York
Stock Exchange listed company) ("Titan") communicated an unsolicited
expression of interest in exchanging Titan shares for all of the outstanding
shares of the Company. Titan estimated the value of its proposal at $30
million.
At its regularly scheduled meeting of March 16, 1998, the Company's
Board of Directors was presented with reports on the Titan expression of
interest, the views expressed by Legg Mason and management as a result of
their study of strategic alternatives and the conclusions of Legg Mason with
respect to the valuation of the Company. The Board authorized and instructed
Legg Mason to solicit additional expressions of interest in the Company by
distributing a descriptive memorandum to candidates identified through the
combined efforts of Legg Mason and management.
By mid-April, confidentiality agreements were executed by fifteen
candidates and each received a copy of the descriptive memorandum. Twelve
others were contacted but were not interested. Offers were received from
three candidates, including a revised all cash offer from Titan. None of the
offers contemplated the acquisition of QTPI The principal financial terms of
the offers were as follows:
(i) MTC offered to acquire all issued and outstanding shares of the
Company for $13 per share of Common Stock plus assumption of the
Company's debt;
(ii) EER Systems, Inc. offered to acquire all issued and outstanding
shares of the Company for $14.50 per share of Common Stock plus
assumption of the Company's debt;
(iii) Titan offered to acquire all issued and outstanding shares of
the Company for $30 million plus assumption of the Company's
debt.
The Company's Board of Directors met on May 4, 1998 for the purpose
of evaluating these offers and deciding upon an appropriate course of action.
As a result of the analysis conducted at this special meeting, the Board
determined that a sale of the Company was in the best interests of the
Company and its shareholders, and authorized and instructed Company
management to proceed with negotiations with Titan for the purpose of
finalizing an agreement for the sale, generally in accordance with the terms
of the Titan offer.
Negotiations with Titan and due diligence by Titan began on May 6
and were carried out concurrently until May 12. On that date, CACI submitted
an offer for $17 per share of Common Stock plus assumption of the Company's
debt. This offer had a higher cash value to shareholders and fewer
contingencies than the Titan offer. During the next three days, Titan
increased its offer to $35 million and CACI increased the value of its offer
to $18.375 per share of Common Stock ($35,388,486).
At its regularly scheduled meeting held on May 15, 1998, the
Company's Board of Directors received from Legg Mason and management a
detailed explanation and evaluation of the competing Titan and CACI offers.
The
6
<PAGE>
Board concluded that CACI had submitted the superior offer because it offered
the highest cash price and had the least contingencies. At this meeting, Legg
Mason delivered its oral opinion (which was subsequently confirmed in
writing) that, based on the matters presented to the Board and set forth in
its opinion, as of the date of the opinion, the consideration proposed by
CACI in its last offer and to be received by the shareholders of the Company
pursuant to the proposed merger of the companies was fair, from a financial
point of view, to such shareholders. On the basis thereof, the Board
unanimously decided to authorize and instruct the Company's management to
cease negotiations with Titan and to commence negotiations with CACI for the
purpose of reaching an agreement for the Merger, generally in accordance with
the terms of the last CACI offer. Accordingly, on May 18, 1998, CACI and the
Company entered into a letter of intent for a proposed merger, pursuant to
which the Company's shareholders would receive, in cash, $18.375 for each
share of Common Stock, subject to adjustment for the disposition of QTPI. The
Merger would be conditioned upon the negotiation of a definitive agreement,
disposition of QTPI and receipt of required government, Board and shareholder
approvals.
At a special meeting of the Company's Board held on July 28, 1998,
the definitive agreement which resulted from the authorized negotiations with
CACI was presented to the Board for its consideration and was unanimously
approved. At this same meeting, the Board further adopted a resolution
recommending approval of the Merger and the Merger Agreement by the Company's
shareholders. On July 30, 1998, the Merger Agreement was executed by the
parties. The amendment to the Merger Agreement extending the final date by
which the Merger must be consummated was executed by the parties as of
October 6, 1998.
During this same period, the Board authorized and instructed the
Company's management to solicit potential investors and/or purchasers for
QTPI, and to prepare and distribute, to prospective buyers, an offering
memorandum and business plan.
As a result of this process, the Company received an offer from
Printpack to purchase all of the assets of QTPI and on July 23, 1998, the
Company, QTPI and Printpack entered into a letter of intent whereby the
Company and QTPI agreed to sell to Printpack all of QTPI's assets. However,
on August 7, 1998, Printpack withdrew its offer.
During this same period, a contractual dispute arose between QTPI
and its primary customer which resulted in mutual termination of the contract
with the customer. In light of the cancellation of this principal contract,
the withdrawal of the Printpack offer, the lack of viable alternative offers
for QTPI and the consummation of the Merger being subject to disposition of
the packaging business, on August 17, 1998, the Board decided that QTPI
should cease business operations immediately and that management should
proceed with dissolution of QTPI and termination of its corporate existence.
Thereafter, the Company and CACI negotiated a downward adjustment in the
Merger Consideration of $.245 per share. The adjustment was calculated taking
into account the cash held by QTPI, the costs associated with a dissolution
of QTPI, the disposition of QTPI's assets and the tax benefits assuming a
write-off of QTPI's assets. The parties agreed that QuesTech would retain the
proceeds from the liquidation of the QTPI assets in exchange for which CACI
agreed to not require any reserves against the Merger Consideration for
contingent liabilities. On September 16, 1998, a Certificate of Dissolution
of QTPI was issued by the Virginia State Corporation Commission and its
corporate existence will be terminated prior to the Merger, following the
disposition of any assets and liabilities.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Company's Board of Directors has determined and believes that
the terms of the Merger Agreement are fair to, and in the best interests of,
the Company and its shareholders. Accordingly, the Board has approved and
adopted the Merger Agreement and the transactions contemplated thereby and
recommends its approval and adoption by the Company's shareholders.
In reaching its determination, the Board consulted with the
Company's management, as well as its legal counsel and financial advisor, and
considered a number of positive and negative factors, including:
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<PAGE>
- - - The Company's business, condition and prospects. The Board considered
information with respect to the financial condition, results of operations
and business of the information technology portion of the Company, on both
a historical and prospective basis, and current industry, economic and
market conditions. The Board also considered the Company's historical
performance and future growth strategies, including the Company's
annualized three-year growth rate of approximately 13%. Management and the
Company's financial advisor made presentations to and provided the Board
with information regarding the information technology marketplace and
prospects for the industry. The Board considered recent trends in the
information technology industry and concluded that the Company's lack of
sufficient technical and financial resources, as compared to larger and
more highly capitalized information technology firms, would make it
increasingly more difficult to effectively compete for important future
re-competes at levels of prior performance on existing projects and for new
projects with traditional customers due primarily to growth in the size of
available projects and consolidation in the industry. It was determined
that these trends could adversely affect the Company's ability to grow at
levels consistent with prior performance.
- - - The offerors' business, condition and prospects. The Board considered
information, and Company management and the Company's financial advisor
made presentations to the Board, with respect to the financial condition of
each of the offerors, and as to each offeror's ability to pay the offered
merger price to the shareholders.
- - - Opinion of Financial Advisor. The Board considered the opinion of Legg
Mason that the consideration to be received by the Company's shareholders
pursuant to the Merger was fair, from a financial point of view, to such
shareholders. The Board also evaluated the various presentations made to it
by Legg Mason. A copy of Legg Mason's written opinion is attached hereto as
Appendix B and is incorporated herein by reference.
- - - Financial Factors. The Board considered the fact that the execution of the
Company's growth and development plans would require substantial additional
capital and determined that combining with a larger, financially stable
company such as CACI would be necessary to provide the Company with
necessary access to capital. In addition, the Board noted that there has
been significant recent consolidation in the information technology
industry, which has had the result of creating several large, well-financed
information technology companies, which could adversely affect the
Company's competitive position.
- - - Terms of the Merger. The Board considered the terms and conditions of the
Merger Agreement, including the provisions that allow the Company to
terminate the Merger Agreement under certain circumstances upon payment to
CACI of a $1 million termination fee. The Board considered such a fee in
light of the range of such fees payable in comparable transactions. The
Board also considered that, pursuant to the Affiliates' Agreements (copies
of which are appended hereto as Appendix C and are incorporated herein by
reference), the holders of approximately 21.5% of the outstanding shares of
the Company have agreed to vote their shares of Common Stock in favor of
the Merger.
- - - Alternative Transactions. The Board took into consideration the results of
the process undertaken by Legg Mason and management to identify and solicit
indications of interest with respect to a strategic combination with other
entities. The Board also took note of the recommendations of Legg Mason and
management with respect to other transactions which may have been available
to the Company, such as a leveraged recapitalization, the issuance of
additional shares of Common Stock and/or the payment of dividends. See "II.
THE MERGER BACKGROUND."
- - - Trading Price of Common Stock. The Board reviewed the trading price of the
Common Stock, including recent trends and the effect of the various
announcements about financial results of the Company for the periods ending
September 30 and December 31, 1997, and March 31, 1998, as well as
announcement about the engagement of a financial advisor. The Board noted
that on December 31, 1997, February 24, 1998 (the last trading date before
announcement of the engagement of a financial advisor) and May 18, 1998
(the last full trading date before announcement of execution of a letter of
intent by the Company and CACI, the Common Stock closed at $6.75, $7.25 and
$14.50, respectively, on the NASDAQ Stock Market. The Board considered
8
<PAGE>
the fact that the value to be received in the Merger represented a premium
over the recent historical trading price of the Common Stock.
The foregoing discussion of the information and factors considered
and given weight by the Board is not intended to be exhaustive but is
believed to include all material factors considered by the Board. In
addition, in reaching the determination to approve and recommend approval and
adoption of the Merger Agreement by the Company's shareholders, in view of
the wide variety of factors considered in connection with its evaluation
thereof, the Board did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights
to different factors.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
Legg Mason was retained by QuesTech to, among other things, render
an opinion as to the fairness, from a financial point of view, to QuesTech's
shareholders of the Merger Consideration. On May 15, 1998, Legg Mason
rendered its oral opinion to the QuesTech Board of Directors, and issued a
written opinion dated as of July 30, 1998, that as of such date, and subject
to the assumptions, factors and limitations stated in its opinion, the Merger
Consideration, was fair to QuesTech's shareholders from a financial point of
view.
The full text of the written opinion of Legg Mason dated July 30,
1998, which sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached as Appendix B to this Proxy Statement and is incorporated hereby by
reference. Shareholders are urged to read this opinion in its entirety for
information with respect to the procedures followed, assumptions made and
consideration to be received by QuesTech's shareholders pursuant to the
Merger Agreement and does not constitute a recommendation to any shareholder
as to how such shareholder should vote at the Special Meeting. The summary of
the opinion of Legg Mason set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of such opinion.
In connection with its opinion, Legg Mason reviewed, among other
things, (a) the Merger Agreement, (b) the Annual Reports to Shareholders and
the Annual Reports on Form 10-K of QuesTech for the five fiscal years ended
December 31, 1997; (c) certain interim reports to shareholders and Quarterly
Reports on Form 10-Q of QuesTech; and (d) certain other communications from
QuesTech to their respective shareholders. Legg Mason also had discussions
with members of the senior management of QuesTech regarding the past and
current business operations, financial condition and future prospects of
their company. In addition, Legg Mason reviewed the reported price and
trading activity for the shares of QuesTech Common Stock, compared certain
financial and stock market information for QuesTech with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the
federal information technology services industry specifically, and in other
industries generally, and performed such other studies and analyses as Legg
Mason considered appropriate.
Legg Mason relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by
them for purposes of their opinion. Legg Mason did not make an independent
evaluation or appraisal of the assets and liabilities of QuesTech or any of
its subsidiaries and they were not furnished with any such evaluation or
appraisal.
The following is a summary of the financial analyses Legg Mason
utilized in connection with providing its opinion to the Board of Directors.
(a) Stock Trading History. Legg Mason examined the history of the
trading prices and volumes for the shares of QuesTech Common
Stock. This examination showed that during the four month period
from January 16, 1998 to May 14, 1998, the trading price of
QuesTech Common Stock ranged from $5.50 per share to $14.00 per
share. This range may be compared to the Merger Consideration. In
addition, this examination showed that over the period from
January 1, 1997 to January 16, 1998, the trading price of QuesTech
Common Stock ranged from $5.375 per share to $8.625 per share.
9
<PAGE>
(b) Comparison of Selected Peer Companies. Legg Mason compared
selected historical stock market and balance sheet data and
financial ratios for QuesTech to the corresponding data and
ratios of the following selected federal information technology
services companies: Advanced Communication Systems, Inc.;
Analysis & Technology, Inc.; CACI International Inc; GRC
International, Inc.; Halifax Corporation; Nichols Research
Corporation; The Titan Corporation; and VSE Corporation. The data
and ratios Legg Mason compared included, among other things,
levered market capitalization (current stock price multiplied by
shares outstanding plus debt), levered market capitalization to
latest twelve months ("LTM") revenues, LTM earnings before
interest, tax, depreciation and amortization ("EBITDA") and LTM
earnings before interest and taxes ("EBIT"), as well as Fiscal
Year 1998 (year ended December 31, 1998) and Fiscal Year 1999
(year ended December 31, 1999) estimated price-to-earnings
("P/E") ratios (estimates provided by First Call Analysts'
Research and FactSet Data Systems).
An analysis of levered market capitalization to LTM revenues
yielded a range of 0.43x to 1.09x with a mean and median of 0.75x
and 0.82x, respectively, as compared to 0.58x for QuesTech. An
analysis of levered market capitalization to LTM EBITDA yielded a
range of 6.3x to 20.3x with a mean and median of 12.0x and 10.6x,
respectively, as compared to 10.0x for QuesTech. An analysis of
levered market capitalization to LTM EBIT yielded a range of 8.6x
to 23.7x with a mean and median of 16.1x and 14.1x, respectively,
as compared to 13.3x for QuesTech. An analysis of LTM P/E ratios
yielded a range of 8.1x to 31.6x with a mean and median of 20.2x
and 20.9x respectively, as compared to 18.7x for QuesTech. An
analysis of Fiscal Year 1998 estimated P/E ratios yielded a range
of 16.5x to 20.8x with a mean and median of 18.5x and 19.1x,
respectively, as compared to 15.0x for QuesTech. An analysis of
Fiscal Year 1999 estimated P/E ratios yielded a range of 13.4x to
17.6x with a mean and median of 15.0x and 14.3x, respectively, as
compared to 13.6x for QuesTech.
(c) Selected Transactions Analysis. Legg Mason analyzed certain
information relating to selected transactions in the federal
information technology services industry (the "Selected
Transactions"). Such analysis indicated that for the Selected
Transactions, (i) aggregate consideration as a multiple of LTM
sales ranged from 0.16x to 0.88x with a mean and median of 0.60x,
as compared to 0.58x for the contemplated transaction, (ii)
aggregate consideration as a multiple of LTM EBIT ranged from
7.8x to 13.0x with a mean and median of 10.1x and 9.6x,
respectively, as compared to 13.3x for the contemplated
transaction, (iii) aggregate consideration as a multiple of LTM
net income ranged from 14.2x to 20.0x with a mean and median of
17.0x and 16.7x, respectively, as compared to 27.1x for the
contemplated transaction.
No company, transaction or business used in the "Comparison of
Selected Peer Companies" or "Selected Transaction Analysis" as a
comparison is identical to QuesTech or the Merger. Accordingly, an
analysis of the results of the foregoing is not entirely
mathematical. Instead, it involves complex considerations and
judgments concerning differences in financial and operating
characteristics and other factors that could affect the
acquisition, public trading or other values of the Peer Companies,
Selected Transactions or the business segment, company or
transaction to which they are being compared.
(d) Discounted Cash Flow Analysis. Legg Mason performed a discounted
cash flow analysis of QuesTech. Legg Mason calculated a net
present value of estimated free cash flows for the Fiscal Years
1998 through 2002 using discount rates ranging from 11.0% to
15.0%. Legg Mason calculated QuesTech's terminal values in the
year 2002 based on multiples ranging from 8.0x EBIT to 12.0x
EBIT. These terminal values were then discounted to present value
using discount rates from 11.0% to 15.0%. Using the foregoing
terminal values and discounted cash flows for QuesTech, the
equity value per share ranged from $11.64 to $17.24 per share as
compared to the equity value implied by the Merger Consideration
of approximately $18.375.
Attached hereto as Appendix E are the projections prepared by Legg
Mason, in consultation with the Company's management, which were
used in the discounted cash flow analysis.
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The preparation of a fairness opinion is a complex process and is
not necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Legg Mason's opinion. In arriving at its fairness
determination, Legg Mason considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is
identical to QuesTech or the contemplated transaction. The analyses were
prepared solely for purposes of Legg Mason providing its opinion to the Board
of Directors as to the fairness of the Merger Consideration pursuant to the
Merger Agreement to the holders of shares of QuesTech Common Stock and do not
purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or
their respective advisers, neither QuesTech or Legg Mason or any other person
assumes responsibility if future results are materially different from those
forecasts.
As described above, Legg Mason's opinion to the Board of Directors
was one of the many factors taken into consideration by the Board of
Directors in making its determination to approve the Merger Agreement. The
foregoing summary does not purport to be a complete description of the
analyses performed by Legg Mason and is qualified by reference to the written
opinion of Legg Mason set forth in Appendix B hereto.
Legg Mason, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. QuesTech selected Legg Mason as its financial adviser because Legg
Mason is a nationally recognized investment banking firm that has substantial
experience in transactions similar to the Merger.
Legg Mason provides a full range of financial, advisory and
brokerage services and in the course of its normal trading activities may
from time to time effect transactions and hold positions in the securities or
options on securities of QuesTech and/or CACI for its own account and for the
account of customers.
Pursuant to a letter agreement dated January 6, 1998, (the
"Engagement Letter"), QuesTech engaged Legg Mason to act as its financial
advisor in connection with a possible sale of QuesTech. Pursuant to the terms
of the Engagement Letter, QuesTech has paid Legg Mason a retainer fee of
$35,000, and if the Merger is consummated, Legg Mason will receive an
additional fee of 2.0% of the transaction value, as calculated under the
Engagement Letter, less the retainer fee of $35,000. QuesTech has agreed to
reimburse Legg Mason for its reasonable out-of-pocket expenses, including
attorneys' fees, and to indemnify Legg Mason against certain liabilities,
including certain liabilities under federal securities law.
THE SPECIAL MEETING
The close of business on September 30, 1998, has been fixed as the
record date for the determination of shareholders entitled to vote at the
Special Meeting. As of the record date, there were outstanding and entitled
to be voted at such meeting 1,925,904 shares of Common Stock. These shares
were held of record by approximately 218 shareholders. Each shareholder is
entitled to one vote on each matter that comes before the meeting for each
share of Common Stock held by such shareholder on the record date.
The affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Common Stock is required to approve and
adopt the Merger and Merger Agreement. Certain shareholders and officers of
the Company have entered into agreements with CACI whereby they have agreed
to vote in favor of the Merger. Approximately 21% of the Company's issued and
outstanding shares are covered by such agreements.
The affirmative vote of the holders of at least a majority of such
Common Stock is generally required to act on other matters properly brought
before the meeting.
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CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, each share of Company stock will be
converted into the right to receive the Adjusted Merger Consideration,
without interest, and the shareholders of the Company will cease to have any
ownership interest in the Company or rights as shareholders. The shareholders
will no longer benefit from any increase in the value of the Company and will
no longer bear the risk of any decrease in the value of the Company.
Following the Merger, CACI will own one hundred percent (100%) of the
Company's stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with
respect to the Merger, holders of the Common Stock should be aware that
certain members of management of the Company and of the Board of Directors
have interests in the Merger that are different from, or in addition to, the
interests of the holders of Common Stock generally. The Board of Directors
was aware of, and considered, the following such interests, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby:
- - - Employment Agreement. Mr. Salvatori, the Company's Chairman of the Board
and Chief Executive Officer, will terminate his employment with the Company
as of the Closing Date of the Merger. According to the terms of his
employment contract, Mr. Salvatori will receive certain payments and
benefits upon his termination of employment which have an approximate total
value of $3.8 million and which include (i) the following lump sum payments
to be made at closing: approximately $2.7 million as compensation for
post-employment payments which would have been made under the contract for
five years and approximately $1 million in lieu of retirement benefits
under various Company retirement plans; and (ii) medical (including long
term care), dental and vision benefits for Mr. Salvatori and his spouse and
maintenance of his current life insurance coverage. In addition, Mr.
Salvatori will also receive $600,000 for an extension on a covenant not to
compete.
- - - Stock Options. At the Effective Time, all currently unvested options
outstanding under the Company's 1994 Incentive Stock Option Plan, 1996
Incentive Stock Option Plan and 1996 Non-employee Director Stock Option
Plan (the "Stock Option Plans") will become fully vested. The treatment in
the Merger of outstanding options under the Stock Option Plans is described
in "The Merger Agreement - The Stock Option Plans." In connection with the
Merger, options for approximately 350,000 shares of Common Stock will
become immediately exercisable. Option holders, including officers and
directors of the Company, will have their options cashed out by paying the
difference between the Adjusted Merger Consideration and the exercise price
of the options. The estimated values of unvested stock options accelerated
by the Merger for each of the Company's chief executive officer and the
four most highly compensated executive officers, as well as officers and
directors as a group are: $466,950 (Salvatori), $328,500 (Mayefskie),
$221,500 (Fairl), $174,000 (Rigby), $82,125 (Siegel) and $1,759,495 (twelve
officers and directors as a group.
- - - Stock Employee Compensation Trust ("SECT") The QuesTech, Inc. Amended and
Restated Stock Employee Compensation Trust holds 455,678 shares of Common
Stock, approximately 350,000 of which have been allocated to employee stock
option grants. Upon consummation of the Merger, the SECT will pay to option
holders the difference between the Adjusted Merger Consideration and the
exercise price of the options, as described above in "Stock Options."
Immediately thereafter, the SECT will terminate and the funds remaining in
the SECT at that time will be used to repay the Company loans made to the
SECT to purchase Common Stock, with any remainder, valued at approximately
$1.26 million, to be paid from the SECT to the Company for use, following
the Merger, in promoting the general welfare and benefit of the Company's
employees.
- - - Aggregate Amount To Be Received By Directors and Executive Officers. As a
result of the Merger, the Directors and Executive Officers, as a group,
will receive approximately $13,500,000. Such amount includes approximately
$8,000,000 to be received for the shares beneficially held by Directors and
Executive Officers as well as payments described in the paragraphs entitled
"Employment Agreement" and "Stock Option," above.
- - - Directors and Officers Insurance; Limitation of Liability of Officers and
Directors. The Merger Agreement provides that, following the Merger, CACI
shall indemnify, defend and hold harmless each person who is or
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was an officer or director of the Company, to the same extent that they are
currently indemnified by the Company for acts or omissions in their
capacities as officers or directors of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 29, 1998 (except as otherwise
noted), the number of shares of Common Stock of the Company beneficially
owned, directly or indirectly, by (i) each person who, to the knowledge of
the Company and/or based on publicly available information, beneficially owns
more than 5% of its outstanding Common Stock, and (ii) the chief executive
officer and each of the four most highly compensated executive officers, each
director and all current executive officers and directors of the Company as a
group. Unless otherwise indicated, the address of each owner is the address
of the Company.
<TABLE>
<CAPTION>
Shares of common Stock
Name and Address of Beneficial Owner Beneficially Owned(1) Percent of Class
<S> <C> <C>
Stock Employee Compensation Trust(1) 455,678(2) 23.7(2)
EER Systems, Inc. 168,300(4) 8.7
10284 Aerospace Road
Seabrook, MD 20706
Modern Technologies Corporation 85,400(5) 4.4
4032 Linden Avenue
Dayton, OH 45432
Edward G. Broenniman 7,500(6) *
Director
Gerald F. Mayefskie 78,176(7) 4.0
President & COO and Director
Sebastian P. Musco 155,480(8) 8.1
Director
Vincent M. Russo 5,700(9) *
Director
Vincent L. Salvatori 235,410(10) 12.2
Chairman & CEO and Director
William M. Fairl 27,500(11) 1.4
Sector Vice President
Joe W. Rigby 20,000(12) 1.0
Sector Vice President
Timothy Siegel 11,050(13) *
Senior Vice President
All directors and Executive Officers as a 588,068 30.5
group (12 persons)
</TABLE>
* Represents less than 1% of the outstanding Common Stock
(1) Where applicable, includes option shares held by the SECT as to which the
designated beneficial owner can direct the vote, tender or exchange under
the terms of the SECT.
(2) Shares Beneficially Owned and as Percent of Class include shares as to
which the SECT shares voting power and which may also be included in the
Beneficial Ownership and Percent of Class of individual directors and
officers.
(3) The SECT is governed by the Amended and Restated Stock Employee
Compensation Trust Agreement effective as of March 25, 1998 (the "SECT
Agreement") and was originally established by the Company effective
December 31, 1993. This trust holds shares of Common Stock of the Company
for the purpose of funding the Company's stock option plans. The members of
the Board of Directors of the Company serve as the Trustees of the SECT.
Pursuant to the SECT Agreement, shares held in the SECT are voted, tendered
or exchanged by the Trustees based on the instructions of the Company's
current employees or non-employee directors who participate in those plans
that are funded by the SECT, for which reason these shares may be
considered to be subject to shared voting and investment power. For
purposes of voting, tendering or exchanging shares of the SECT, each plan
participant is assigned the number of shares equal to the total number of
shares of Common Stock covered by all of the participant's option grants
under the plans, and the participant's instructions are followed by the
Trustees with respect to those shares. Any assigned shares for which no
instructions are received are voted, tendered or
13
<PAGE>
exchanged in proportion to the instructions that have been received from
the other participants; any unassigned shares are voted in the same
proportion as those for which voting instructions are received, but will
not be tendered or exchanged.
(4) Represents shares owned by EER Systems, Inc. as to which it shares with
Shashi Gupta and Jai N. Gupta voting and investment power.
(5) Represents shares owned by Modern Technologies Corporation, Rajesh K. Soin
and Indu Soin, members of a Group.
(6) Includes 5,000 option shares under the SECT as to which voting power is
shared.
(7) Includes 34,176 shares in which beneficial interest is shared and 40,000
option shares under the SECT as to which voting power is shared.
(8) Includes 5,000 option shares under the SECT as to which voting power is
shared. Also, per a Fourth Shareholders Agreement, dated December 16, 1983,
as amended, Messrs. Musco and Salvatori have agreed to vote their
respective shares for one another as directors of the Company.
(9) Includes 5,000 option shares under the SECT as to which voting power is
shared.
(10) Includes 175,410 shares in which beneficial interest is shared and 60,000
option shares under the SECT as to which voting power is shared. Also, see
footnote 8.
(11) Includes 25,000 option shares under the SECT as to which voting power is
shared.
(12) Includes 20,000 option shares under the SECT as to which voting power is
shared.
(13) Includes 10,000 option shares under the SECT as to which voting power is
shared.
THE MERGER AGREEMENT
This description of the Merger Agreement is not complete. You are
referred to the copy of the Merger Agreement which is attached to this Proxy
Statement as Appendix A. All shareholders are urged to read the entire Merger
Agreement for a complete description of the terms and conditions of the Merger.
General
The Merger Agreement provides for the merger of Acquisition
Corporation, a wholly-owned subsidiary of CACI, with and into the Company, with
the Company being the surviving corporation. The Merger will be effective after
all conditions in the Merger Agreement are met, including receipt of shareholder
approval, and after merger documents are filed with the Delaware Secretary of
State and the Virginia State Corporation Commission and a certificate of merger
has been filed with the Virginia State Corporation Commission (the "Effective
Time"). The total value of the Merger is $44,492,000, which includes $13,818,000
of indebtedness assumed by CACI. It is the Company's understanding that CACI's
source of funding for the Merger is a line of credit specifically designed for
CACI acquisitions.
14
<PAGE>
Adjusted Merger Consideration
At the Effective Time, by virtue of the Merger and without any
action on the part of shareholders, each share of Common Stock of the
Company, issued and outstanding immediately prior to the Effective Time, will
be canceled and extinguished and each share will be converted into the right
to receive $18.13 per share, in cash. The Adjusted Merger Consideration
multiplied by the number of shares held by any one shareholder entitled to
payment shall be the total cash amount to which said shareholder shall be
entitled.
Exchange of Share Certificates
At or shortly after the Effective Time, a Letter of Transmittal form
will be mailed to each shareholder of record as of the Effective Time. To
receive the Adjusted Merger Consideration, a shareholder must properly
complete and return to the Paying Agent the Letter of Transmittal, together
with certificates representing the shares to be exchanged, duly endorsed in
blank or otherwise in a form acceptable for transfer.
Stock Option Plans
At the Effective Time, any unvested options outstanding under the
Company's Stock Option Plans shall become vested. At the Effective Time, each
such option, as well as all previously vested options outstanding under such
Plans, will be canceled and each holder will receive an amount equal to the
product of (i) the difference between (x) the Adjusted Merger Consideration
and (y) the exercise price of said option, multiplied by (ii) the number of
shares of the Company's Common Stock underlying such option (less applicable
withholding taxes).
Representations and Warranties
The Merger Agreement contains substantially reciprocal
representations and warranties made by CACI and the Company relating to,
among other things, (i) due organization, corporate power and good standing;
(ii) ownership of subsidiaries; (iii) corporate authority to enter into the
Merger Agreement, and noncontravention of certain organization documents,
material agreements or governmental orders; (iv) reports and other documents
filed with the Securities and Exchange Commission; (v) litigation; and (vi)
absence of certain changes or events. The Company has also provided certain
additional representations and warranties relating to, among other things,
(i) compliance with laws; (ii) tax matters; (iii) employee benefit plans;
(iv) real property; (v) labor matters; (vi) environmental matters; and (vii)
intellectual property.
Covenants
Conduct of Business of the Company Prior to the Effective Time. From the
Execution Date until the Effective Time, the Company and its subsidiaries are
required to conduct their business, with certain exceptions, in all material
respects in the ordinary course consistent with past practice and in
compliance in all material respects with applicable laws. The Company has
agreed, and will cause its subsidiaries (except with respect to the Company's
packaging business) to agree, to use all reasonable efforts to preserve their
current business organizations, keep available the services of their current
officers and other key employees and preserve their business relationships so
that their goodwill and ongoing businesses will be unimpaired at the
Effective Time.
The Company agrees that it will not, and it will not permit its
subsidiaries (except QTPI) to: (i) amend its articles of incorporation,
by-laws or other organizational documents; (ii) declare or pay any dividends
on, or make any other distributions in respect of, any of its capital stock;
(iii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock; (iv) borrow or agree to
borrow any funds or voluntarily incur, or assume or become subject to, any
liability or obligation not in the ordinary course of business; (v) pay,
discharge or satisfy any claim, obligation or liability in excess of $50,000
(in any one case) or $100,000 in the aggregate, except in the ordinary course
of business; (vi) except as required by law or as contemplated in the Merger
Agreement, adopt or materially amend or terminate any agreement or plan for
the benefit of employees; (vii) sell, mortgage pledge or otherwise encumber
or dispose of any of its assets, other than in the ordinary course of
business; (viii) acquire by merging or consolidating
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<PAGE>
with, or by purchasing any equity interest in or a material portion of the
assets of, any business, except in the ordinary course of business; (ix)
increase the compensation of, or pay any benefit or amount not required by a
plan or arrangement to, any director, officer or other employee other than in
the ordinary course of business consistent with past practices; (x) dispose
of, permit to lapse, or otherwise fail to preserve rights to use, or sell or
grant any right to exclusive use of, designated proprietary information,
other than in the ordinary course of business consistent with past practices;
(xi) enter into any contract or commitment, or amend in any material respect
any such contract or commitment, that would have or could reasonably be
expected to have a material adverse effect upon the Merger; (xii) waive,
release, transfer or permit to lapse any claims or rights having a value of
more than $50,000 or which have or could reasonably be expected to have a
material adverse effect upon the Merger; (xiii) except as contemplated in the
Merger Agreement, take any action that would materially decrease the
Company's net worth; and (xiv) make any change to its accounting methods or
practices, except as may be required by generally accepted accounting
principles.
Necessary Filings and Cooperation. The Merger Agreement provides that each of
the Company and CACI and their respective subsidiaries: (i) will prepare and
file all necessary filings with respect to the Merger Agreement and the
transactions contemplated thereby, including filings with the SEC and
pursuant to the HSR Act; and (ii) will use all reasonable efforts to take all
actions to do and to assist and cooperate with the other parties in doing all
things necessary to consummate and make effective the Merger and the other
transactions contemplated by the Merger Agreement including (A) obtaining all
necessary actions, waivers, consents and approvals and making all necessary
registrations and filings, and (B) defending any lawsuits, injunctions or
other legal proceedings challenging the Merger or the Merger Agreement.
Conditions to Consummate the Merger
Conditions to Each Party's Obligation To Consummate the Merger. The
obligation of each party to consummate the Merger is subject to the
satisfaction or waiver of certain conditions, including: (i) obtaining the
approval of the Company's shareholders; (ii) the absence of injunctions or
legal restraints preventing the consummation of the Merger; (iii) expiration
or earlier termination of the applicable waiting period under the HSR Act;
and (iv) the delivery of usual and customary opinions of counsel.
Conditions to the Obligation of CACI. The obligation of the CACI to
consummate the Merger is further subject to satisfaction or waiver of the
following conditions: (i) each of the representations and warranties of the
Company in the Merger Agreement that are qualified as to materiality will be
true and correct, and each of the representations and warranties of the
Company in the Merger Agreement that are not so qualified will be true and
correct in all material respects, in each case as of the closing date; (ii)
the Company will have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Effective Date, and CACI will have received a certificate signed on behalf of
the Company by its chief executive officer to that effect; (iii) at any time
after the date of the Merger Agreement, there will not have occurred any
event which, individually or when considered with any other such event, could
reasonably be expected to result in a material adverse effect on the Company;
and (iv) the Company shall have disposed of its packaging subsidiary or shall
have made such other arrangements with respect thereto as are satisfactory to
CACI.
Termination; Fees and Expenses
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the Company's
shareholders: (i) by mutual written consent of CACI and the Company; (ii) by
either CACI or the Company (A) if the Merger has not been consummated by
November 15, 1998, so long as the terminating party did not fail to perform
any of its obligations under the Merger Agreement resulting in the failure of
the Merger to be consummated by that time, (B) if the approval of the
Company's shareholders is not obtained, (C) if any governmental entity has
issued a final, nonappealable restraint or other action, permanently
enjoining, restraining or otherwise prohibiting the consummation of the
Merger or any of the other transactions contemplated by the Merger Agreement,
or (D) if the other party shall have breached or failed to perform in any
material respect any of its representations, warranties or covenants under
the Merger Agreement and the breach or failure to perform cannot be or has
not been cured such breach or failure within thirty days after written notice
thereof; (iii) by CACI,
16
<PAGE>
if the Company's Board of Directors or any committee thereof has (A)
withdrawn, modified or amended in a manner adverse to CACI its approval or
recommendation of the Merger or the Merger Agreement, (B) failed to include
its recommendation in favor of the Merger and the Merger Agreement in this
Proxy Statement, or (C) approved or recommended, or proposed publicly to
approve or recommend, any Company takeover proposal other than the Merger;
(iv) by the Company, if the CACI Board of Directors or any committee thereof
has withdrawn, modified or amended in a manner adverse to the Company its
approval or recommendation in favor of the Merger or the Merger Agreement; or
(v) by the Company if it approves a superior proposal, provided that the
Company has complied with the covenant of the Merger Agreement prohibiting
certain solicitations.
Termination Fee. The Merger Agreement provides that the Company will pay a $1
million termination fee to CACI if the Merger is terminated by CACI pursuant
to item (iii) of the preceding paragraph or by the Company pursuant to item
(v) of the preceding paragraph.
Other Fees and Expenses. Except as otherwise set forth in the Merger
Agreement, all fees and expenses incurred in connection with the Merger, the
Merger Agreement and the related transactions will be paid by the party
incurring the fees or expenses, whether or not the Merger is consummated.
Amendment; Waiver
The Merger Agreement may be amended in writing by the parties at any
time before or after approval by the Company's shareholders; provided,
however, that, after any such approval, there may not be made any amendment
that by applicable law requires further approval by the shareholders of the
Company without the further approval of such shareholders. This includes any
changes to (i) the amount of cash to be received in exchange for the
Company's Common Stock; (ii) any terms of the plan which would adversely
affect the shares of the Company; or (iii) the Company's Articles of
Incorporation.
At any time prior to the Effective Time, a party may in writing: (i)
extend the time for the performance of any of the obligations or other acts
of the other parties; (ii) waive any inaccuracies in the representations and
warranties of the other parties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement; or (iii) waive
compliance by the other party with any of the agreements or conditions
contained in the Merger Agreement (subject to the proviso in the paragraph
above).
CERTAIN REGULATORY MATTERS
The HSR Act requires both parties to file premerger notifications
with the Antitrust Division and the FTC and observe the required waiting
period before consummating the acquisition. CACI and the Company each filed a
premerger notification with the FTC and the Antitrust Division and, on
September 14, 1998, received notice that the FTC and the Antitrust Division
had granted an early termination of the premerger notification waiting
period, effective on that date. Termination of the waiting period means that
the parties are free to complete the Merger consistent with the HSR Act.
The Company and CACI do not believe that any additional governmental
filings in the United States, other than the certificate and articles of
merger to be filed with the Delaware Secretary of State and the Virginia
State Corporation Commission, and other than filings in connection with the
dissolution of QTPI, are required with respect to the Merger. The FTC, the
Antitrust Division or certain private parties could take such action under
the HSR Act as they deem necessary or desirable. Consummation of the Merger
is conditioned upon, among other things, the absence of any preliminary or
permanent injunction or other order issued by any court or other judicial or
administrative body of competent jurisdiction which prohibits or prevents
consummation of the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of
accounting whereby the purchase price will be allocated among the Company's
assets and liabilities based on the fair market value of the assets acquired
and liabilities assumed.
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<PAGE>
III. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger will not be treated as a merger for U.S. federal income
tax purposes. A shareholder of the Company will be treated for federal income
tax purposes as if the shareholder sold such shareholder's Common Stock to
CACI in a taxable exchange and will generally recognize capital gain or loss
in an amount equal to the difference between the shareholder's adjusted tax
basis in such shareholder's Common Stock and the amount of cash received in
exchange therefor.
In general, the maximum rate of tax on net capital gain recognized
by individuals, trusts and estates from the sale or exchange of capital
assets held for more than twelve months is 20% (as compared with a maximum
rate of 39.6% on ordinary income). For 15% bracket taxpayers, the maximum
rate on net capital gains is 10%. Corporate shareholders generally are
subject to tax at a maximum rate of 35% on both capital gains and ordinary
income. The distinction between capital gain and ordinary income may be
relevant for certain other purposes, including a taxpayer's ability to
utilize capital loss carryovers to offset any gain recognized.
The foregoing discussion is based on current law and only applies to
shareholders who hold their Common Stock as a capital asset within the
meaning of Section 1221 of the Code. It does not purport to consider all
aspects of U.S. federal income taxation that may be relevant to particular
shareholders, some of whom may be subject to special rules not discussed
(including, but not limited to, tax-exempt entities, financial institutions,
insurance companies, broker dealers, persons that hold Common Stock as part
of a "straddle," or "conversion transaction"), and the foregoing discussion
may not be applicable to shareholders who acquire their Common Stock pursuant
to the exercise of options or other compensation arrangements or who are not
citizens or residents of the U.S. The foregoing description is not binding on
the Internal Revenue Service ("IRS"), and no ruling from the IRS has been
sought or will be sought with respect to such tax consequences. In addition,
the foregoing discussion does not consider the effect of any applicable
foreign, state, local or other tax laws.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER IS BASED ON EXISTING TAX LAW AS OF THE DATE OF THIS PROXY
STATEMENT, WHICH MAY DIFFER ON THE DATE OF THE EFFECTIVE TIME OF THE MERGER.
EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
IV. NO DISSENTERS' RIGHTS
Holders of the Common Stock do not have a right of dissent under
Virginia law in connection with the Merger. Section 13.1-730 C of the
Virginia Stock Corporation Act provides, in relevant part, that with respect
to a plan of merger or share exchange or a sale or exchange of property there
shall be no right of dissent in favor of holders of shares of any class or
series which, at the record date fixed to determine the shareholders entitled
to receive notice of and to vote at the meeting at which the plan of merger
or share exchange or the sale or exchange of property is to be acted on, were
(i) listed on a national securities exchange or on the National Association
of Securities Dealers Automated Quotation System (NASDAQ) or (ii) held by at
least 2,000 record shareholders, unless certain exceptions, not applicable in
this case, are met. Since the Company is listed on the NASDAQ Stock Market,
holders of the Common Stock will not have a right to dissent in the Merger.
V. DIVIDEND AND PRICE RANGE OF COMMON STOCK
The Company has not paid dividends on the Common Stock. The Common
Stock of the Company is listed on the NASDAQ Stock Market. The high and low
sales prices of the Common Stock on May 18, 1998, the date preceding public
announcement of the proposed Merger, were $15.0625 and $13.875, respectively.
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<PAGE>
VI. DELISTING OF COMMON STOCK
After the effectiveness of the Merger, the Common Stock, which trades
under the symbol "QTEC", will be delisted from the NASDAQ Stock Market and
deregistered for purposes of the Securities Exchange Act of 1934.
VII. SELECTED FINANCIAL INFORMATION
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Restated (1)
Year Ended December 31,
----------------------------------------
06/30/98 06/30/98
(unaudited) (unaudited)
1995 1996 1997 (historical) (proforma) (2)
---------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Working capital 2,162,600 1,861,000 1,532,000 2,400,900 3,819,300
Total assets 16,101,600 20,501,200 23,815,400 27,364,300 25,236,700
Net assets of Discontinued Operations
to be disposed of 490,100 2,376,900 2,682,600 3,546,300 0
Total long term obligations 2,672,500 4,523,400 4,476,900 4,258,500 4,258,500
Total shareholders' equity 5,047,800 6,032,400 6,703,900 7,102,900 4,975,200
</TABLE>
1 Financial position and results of operations are as of and for the years
ended December 31, 1997, 1996 and 1995 have been restated to reflect the
disposal of the packaging subsidiary as a discontinued operation.
2 Net assets associated with the packaging subsidiary as of June 30, 1998
amounted to $3,546,300. Such assets were not written down as of that date
since management believed, based on alternatives available as of the date
of issuance of the Company's financial statements for the second quarter
ended June 30, 1998, that the carrying value of these net assets was
recoverable. Consistent with the decision in late August 1998 to no longer
pursue a sale of the packaging subsidiary, pro forma information presents
estimated write-downs associated with that decision as if the related
impairment had been incurred as of June 30, 1998.
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<PAGE>
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Restated (1)
Year Ended December 31, Six Months Ended,
--------------------------------------- -------------------------------------------
06/30/98
1995 1996 1997 06/30/97 06/30/98 (unaudited)
(unaudited) (unaudited) (proforma) (2)
<S> <C> <C> <C> <C> <C> <C>
Revenues 57,902,700 71,692,900 77,859,500 39,167,000 40,604,300 40,604,300
Total operating expenses 54,223,100 67,896,800 74,677,000 37,393,400 38,737,300 38,737,300
Earnings from continuing
operations 3,679,600 3,796,100 3,182,500 1,773,600 1,867,000 1,867,000
Other expense,
principally interest (1,053,300) (535,700) (565,100) (217,200) (419,900) (419,900)
Earnings from
continuing operations
before income taxes 2,626,300 3,260,400 2,617,400 1,556,400 1,447,100 1,447,100
------------- -------------- ------------ ------------- --------------- --------------
Provision for income taxes (1,125,900) (1,090,700) (1,008,100) (659,900) (613,600) (613,600)
------------- -------------- ------------ ------------- --------------- --------------
Net earnings from 1,500,400 2,169,700 1,609,300 896,500 833,500 833,500
continuing operations
Discontinued operations:
Loss from disposal, net
of tax effect 0 0 0 0 0 (2,127,800)
Loss from discontinued
operations, net of tax
effect (980,300) (1,351,400) (963,400) (604,800) (507,800) (507,800)
------------- -------------- ------------ ------------- --------------- --------------
Net earnings (loss) $520,100 $818,300 $645,900 $291,700 $325,700 ($1,802,100)
------------- -------------- ------------ ------------- --------------- --------------
Earnings per share,
continuing operations:
Basic $1.11 $1.55 $1.12 $0.62 $0.58 $0.58
Diluted 0.97 1.43 1.06 0.59 0.53 0.58
Earnings (loss) per share,
discontinued operations:
Basic ($0.72) ($0.96) ($0.67) ($0.42) ($0.35) ($1.82)
Diluted (0.63) (0.89) (0.64) (0.40) (0.32) (1.82)
Earnings (loss) per share:
Basic $0.39 $0.59 $0.45 $0.20 $0.23 ($1.24)
Diluted 0.34 0.54 0.42 0.19 0.21 ( 1.24)
Weighted average number of
common shares outstanding:
Basic 1,349,331 1,395,397 1,439,193 1,437,686 1,449,132 1,449,132
Diluted 1,540,318 1,517,521 1,521,755 1,510,431 1,584,749 1,449,132
</TABLE>
1 Results of operations for the years ended December 31, 1997, 1996 and 1995
have been restated to reflect the disposal of the packaging subsidiary as a
discontinued operation.
2 Net assets associated with the packaging subsidiary as of June 30, 1998
amounted to $3,546,300. Such assets were not written down as of that date
since management believed, based on alternatives available as of the date
of issuance of the Company's financial statements for the second quarter
ended June 30, 1998, that the carrying value of these net assets was
recoverable. Consistent with the decision in late August 1998 to no longer
pursue a sale of the packaging subsidiary, pro forma information presents
estimated write-downs associated with that decision as if the related
impairment had been incurred as of June 30, 1998.
Restated audited financial statements to present QTPI as a discontinued
operation for years ended December 31, 1995, 1996 and 1997 have been attached
hereto as Appendix D.
20
<PAGE>
VIII. INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Grant Thornton LLP, the principal accountants of
the Company for the current year and for the most recently completed fiscal
year are expected to be present at the Special Meeting, will have the
opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
IX. SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
If the Merger is not consummated, or if it is not consummated within
the time period currently contemplated, the Company will hold a 1999 Annual
Meeting of Shareholders on May 21, 1999. As described in the Company's proxy
statement relating to its 1998 Annual Meeting of Shareholders, proposals to
be presented at the 1999 Annual Meeting of Shareholders must be received by
the Company by January 20, 1999 for inclusion in the Company's proxy
statement and proxy relating to that meeting. Upon receipt of any such
proposal, the Company will determine whether or not to include such proposal
in the proxy statement and proxy in accordance with the Company's By-laws and
SEC regulations governing the solicitation of proxies.
In order for a shareholder to nominate a candidate for director, the
shareholder must comply with the notice and procedural requirements set forth
in the Company's By-laws governing nomination of directors. Notice of the
nomination must be received by the Company no later than the date set forth
above. The shareholder filing the notice of nomination must also describe
various matters regarding the nominee, including but not limited to such
information as name, address, occupation and shares held.
In order for a shareholder to bring other business before a
shareholders' meeting, timely notice must be received by the Company within
the time limits described above. Such notice must include a description of
the proposed business, the reasons therefor and other specified matters.
These requirements are separate from and in addition to the requirements a
shareholder must meet to have a proposal included in the Company's proxy
statement.
In each case the notice must be given to the Secretary of the
Company, whose address is 7600A Leesburg Pike, Falls Church, Virginia 22043.
Any shareholder desiring a copy of the Company's By-laws will be furnished
one without charge upon written request to the Secretary.
X. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the SEC by the Company under File
No. 0-13390 are incorporated by reference in this Proxy Statement: (i) the
Annual Report of Form 10-K for the fiscal year ended on December 31, 1997;
(ii) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1998;
and (iii) the Current Report on Form 8-K, dated May 18, 1998 and filed on
June 4, 1998.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein (or in any subsequently filed document which also is or is deemed to
be incorporated by reference herein) modified or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Proxy Statement.
A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K AND
QUARTERLY REPORT ON FORM 10-Q FOR ITS SECOND QUARTER ENDED JUNE 30, 1998 ARE
BEING DELIVERED WITH THIS PROXY STATEMENT.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE
21
<PAGE>
TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR
ORAL REQUEST OF SUCH PERSON AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT
MEANS WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, TO QUESTECH, INC.,
7600A LEESBURG PIKE, FALLS CHURCH, VIRGINIA 22043, ATTN: MICHAEL P. RIVERA,
VICE PRESIDENT & GENERAL COUNSEL, (703)760-1000. IN ORDER TO ENSURE DELIVERY
OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS MUST BE RECEIVED NO
LATER THAN FIVE BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
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<PAGE>
XI. OTHER MATTERS
The Board of Directors of the Company knows of no business which is
to be brought before the Meeting, other than as set forth above. However, if
any other business properly comes before the Meeting, it is the intention of
the persons named in the accompanying form of proxy to vote in accordance
with their best judgment with respect to such business.
It is important that proxies be returned promptly. Shareholders are
urged to date and sign the enclosed proxy and return it promptly in the
accompanying envelope.
By the Order of the Board of Directors
/s/Vincent L. Salvatori
----------------------------
Vincent L. Salvatori
Chairman of the Board and
Chief Executive Officer
Falls Church, Virginia
October 9, 1998
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APPENDIX A
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CACI INTERNATIONAL INC
CACI ACQUISITION CORPORATION
QUESTECH, INC.
AGREEMENT and PLAN OF MERGER
TABLE OF CONTENTS
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<S> <C>
ARTICLE 1 DEFINITIONS..............................................................................1
1.1 Certain Matters Of Construction..........................................1
1.2 Cross References.........................................................1
1.3 Certain Definitions......................................................2
ARTICLE 2 THE MERGER...............................................................................5
2.1 Procedure For The Merger.................................................5
2.2 Surviving Corporation....................................................5
2.2.1 Corporate Existence...............................................5
2.2.2 Certificate Of Incorporation And Bylaws...........................5
2.2.3 Directors.........................................................5
2.2.4 Effect Of The Merger..............................................5
2.3 Conversion Of Stock......................................................5
2.3.1 Stock Of The Company..............................................5
2.3.2 Merger Price Per Share............................................5
2.3.3 Adjustment To Merger Price Per Share..............................6
2.3.4 Stock Of Merger Sub...............................................6
2.4 Payment Of Merger Price..................................................6
2.4.1 Stockholder List..................................................6
2.4.2 Payment To Paying Agent...........................................6
2.4.3 Letters Of Transmittal............................................6
2.5 Additional Actions.......................................................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................6
3.1 Corporate Status Of The Company..........................................7
3.2 Capital Stock............................................................7
3.2.1 Authorized Stock Of The Company...................................7
3.2.2 Options And Convertible Securities Of The Company.................7
3.3 Subsidiaries.............................................................7
3.4 Authority For Agreement; Noncontravention................................7
3.4.1 Authority.........................................................8
3.4.2 No Conflict.......................................................8
3.5 Financial Statements.....................................................8
3.6 Absence Of Material Adverse Changes And Undisclosed Liabilities..........8
3.7 Compliance With Applicable Law, Articles And Bylaws......................9
3.8 Litigation And Audits....................................................9
3.9 Tax Matters..............................................................9
3.9.1 Filing Of Returns.................................................9
3.9.2 Payment Of Taxes..................................................9
3.9.3 Withholding.......................................................9
3.9.4 Assessments.......................................................9
3.9.5 Access To Returns................................................10
3.9.6 Definition Of Taxes..............................................10
3.10 Employee Benefit Plans..................................................10
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3.10.1 List Of Plans....................................................10
3.10.2 ERISA............................................................10
3.10.3 Plan Determinations..............................................11
3.10.4 Funding..........................................................11
3.11 Employment-Related Matters...............................................11
3.11.1 Labor Relations..................................................11
3.11.2 Employee List....................................................12
3.12 Environmental............................................................12
3.12.1 Environmental Laws...............................................12
3.12.2 Environmental Claims.............................................12
3.12.3 No Basis For Claims..............................................12
3.13 No Broker's Or Finder's Fees.............................................12
3.14 Assets Other Than Real Property..........................................12
3.14.1 Title............................................................12
3.14.2 Accounts Receivable..............................................13
3.14.3 Condition........................................................13
3.15 Real Property............................................................13
3.15.1 Company Real Property............................................13
3.15.2 Company Leases...................................................13
3.15.3 Condition........................................................13
3.16 Agreements, Contracts And Commitments....................................13
3.16.1 Company Agreements...............................................13
3.16.2 Validity.........................................................15
3.17 Intellectual Property....................................................15
3.17.1 Right To Intellectual Property...................................15
3.17.2 No Conflict......................................................15
3.17.3 Employee Agreements..............................................16
3.18 Insurance Contracts......................................................16
3.19 Banking Relationships....................................................16
3.20 Proxy Statement..........................................................17
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..................................17
4.1 Corporate Status Of Parent And Its Subsidiaries..........................17
4.2 Authorized Stock Of Merger Sub...........................................17
4.3 Authority For Agreement; Noncontravention................................17
4.3.1 Authority Of Parent...............................................17
4.3.2 No Conflict.......................................................17
4.4 SEC Statements, Reports And Documents....................................18
4.5 Absence Of Material Adverse Changes......................................18
4.6 Litigation And Audits....................................................18
4.7 Proxy Statement..........................................................18
ARTICLE 5 CONDUCT PRIOR TO THE EFFECTIVE TIME......................................................19
5.1 Conduct Of Business Of The Company.......................................19
5.2 Conduct Of Business Of Parent............................................21
ARTICLE 6 ADDITIONAL AGREEMENTS....................................................................21
6.1 Proxy Statement..........................................................21
6.2 Meeting Of Stockholders..................................................21
6.3 Amendment Of Stock Options...............................................21
6.4 Disposition Of QTPI......................................................21
6.5 Exclusivity..............................................................21
6.6 Expenses.................................................................21
6.7 Affiliate Agreements.....................................................22
6.8 Access And Information...................................................22
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6.9 Public Disclosure........................................................22
6.10 No Solicitation Of Employees.............................................22
6.11 Directors And Officers Indemnification...................................22
6.12 Reasonable Efforts.......................................................22
ARTICLE 7 CONDITIONS PRECEDENT.....................................................................23
7.1 Conditions Precedent To The Obligations Of Each Party....................23
7.1.1 Stockholder Approval..............................................23
7.1.2 Hart-Scott-Rodino Compliance......................................23
7.1.3 No Injunction.....................................................23
7.1.4 Illegality........................................................23
7.2 Conditions Precedent To Obligation Of Parent And Merger Sub To
Effect The Merger......................................................23
7.2.1 Representations And Warranties....................................23
7.2.2 Agreements And Covenants..........................................23
7.2.3 Legal Opinion.....................................................23
7.2.4 Closing Documents.................................................23
7.2.5 Third Party Consents..............................................24
7.2.6 Material Adverse Effect...........................................24
7.2.7 Company Closing Certificate.......................................24
7.2.8 Stockholder List..................................................24
7.2.9 Disposition Of QTPI................................................24
7.2.10 Amendment Of Stock Options.......................................24
7.3 Conditions To Obligations Of The Company To Effect The Merger............24
7.3.1 Representations And Warranties....................................24
7.3.2 Agreements And Covenants..........................................24
7.3.3 Legal Opinion.....................................................24
7.3.4 Closing Documents.................................................24
7.3.5 Material Adverse Effect...........................................24
7.3.6 Parent Closing Certificate........................................24
7.3.7 Payment Of Purchase Price.........................................24
ARTICLE 8 SURVIVAL OF REPRESENTATIONS..............................................................25
8.1 Survival Of Representations..............................................25
8.1.1 The Company's Representations.....................................25
8.1.2 Parent's Representations..........................................25
ARTICLE 9 OTHER PROVISIONS.........................................................................25
9.1 Termination Events.......................................................25
9.2 Notices..................................................................25
9.3 Entire Agreement.........................................................26
9.4 Assignability............................................................27
9.5 Validity.................................................................27
9.6 Specific Performance.....................................................27
9.7 Governing Law............................................................27
9.8 Counterparts.............................................................27
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 30, 1998 (the
"Agreement"), by and among CACI International Inc, a Delaware corporation
("Parent"), CACI Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Parent, ("Merger Sub") and QuesTech, Inc., a
Virginia corporation (the "Company"). Merger Sub and the Company together are
sometimes referred to herein as the "Constituent Corporations."
W I T N E S S E T H
WHEREAS, the respective boards of directors of Parent, Merger Sub
and the Company have determined that it is advisable that Merger Sub be
merged with and into the Company (the "Merger") on the terms and conditions
set forth herein and in accordance with the provisions of the General
Corporation Law of the State of Delaware (the "DGCL") and the Stock
Corporation Act of the Commonwealth of Virginia (the "VSCA");
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations and warranties and other agreements in connection with the
Merger;
NOW, THEREFORE, Parent, Merger Sub and the Company hereby agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Matters of Construction. A reference to an Article,
Section, Exhibit or Schedule shall mean an Article of, a Section in, or
Exhibit or Schedule to, this Agreement unless otherwise expressly stated. The
titles and headings herein are for reference purposes only and shall not in
any manner limit the construction of this Agreement which shall be considered
as a whole. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
1.2 Cross References. The following terms defined elsewhere in this
Agreement in the Sections set forth below shall have the respective meanings
therein defined:
<TABLE>
<CAPTION>
Term
Definition
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Acquisition Proposals.............................Section 6.5.
Adjustment Amount.................................Section 2.3.3.
Adjustment Price Per Share........................Section 2.3.3.
Affiliate Agreements..............................Section 6.7
Agreement.........................................Preamble.
Certificate of Merger.............................Section 2.1.
Closing...........................................Section 2.1.
Closing Date......................................Section 2.1.
Company ..........................................Preamble
Company Balance Sheet.............................Section 3.5
Company Common Stock..............................Section 2.3.1.
Company Financial Statements......................Section 3.5.
Company Insurance Contracts.......................Section 3.18.
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Company Meeting...................................Section 3.20.
Company Proprietary Rights........................Section 3.17.1.
Company Plans.....................................Section 3.10.1.
Constituent Corporations..........................Preamble
Effective Date....................................Section 2.1.
Effective Time....................................Section 2.1.
Employee List.....................................Section 3.11.2.
Encumbrances......................................Section 3.14.1.
GAAP..............................................Section 3.5
DGCL..............................................Preamble
Governmental Entity...............................Section 3.4.2.
Indemnified Parties...............................Section 6.12.
Independent Accountants...........................Section 2.3.3
Liabilities.......................................Section 3.6.
Merger............................................Preamble
Merger Price Per Share............................Section 2.3.2
Merger Sub........................................Preamble
Merger Sub Stock..................................Section 2.3.3.
Net Proceeds Notification.........................Section 2.3.3
Net Proceeds of Sale..............................Section 2.3.3
Parent............................................Preamble
Parent Balance Sheet..............................Section 4.4
Parent Reports....................................Section 4.4.
Parent Stock......................................Section 2.3.1.
Paying Agent......................................Section 2.4
Permits...........................................Section 3.7.
Proxy Statement...................................Section 3.20.
Stockholder List..................................Section 2.4.1.
Stockholders......................................Section 2.4.1.
Surviving Corporation.............................Section 2.1.
Taxes.............................................Section 3.9.6.
Transmittal Letter................................Section 2.4.3.
VSCA..............................................Preamble
</TABLE>
1.3 Certain Definitions. As used herein, the following terms shall have
the following meanings:
Affiliate: with respect to any Person, any Person which, directly or
indirectly, controls, is controlled by, or is under common control
with, such Person.
COBRA: the provisions of Section 4980B of the Code and Part 6 of
Title I of ERISA.
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Closing Certificate: a certificate of the secretary of the entity
certifying as to the incumbency of officers, corporate resolutions to
effect the transactions contemplated by this Agreement and as to the
articles of organization and by-laws.
Code: the U.S. Internal Revenue Code of 1986, as amended from time to
time.
Commercial Software: packaged commercial software programs generally
available to the public through retail dealers in computer software or
directly from the manufacturer which have been licensed to the Company
and which are used in the Company's business but are in no way a
component of or incorporated in or specifically required to develop or
support any of the Company's products and related trademarks,
technology and know-how.
Company Leases: each lease, sublease, license or other agreement under
which the Company or any of its Subsidiaries uses, occupies or has the
right to occupy any real property or interest therein that (a) provides
for future minimum payments of $50,000 or more (ignoring any right of
cancellation or termination) or (b) the cancellation or termination of
which would have a Company Material Adverse Effect.
Company Material Adverse Effect: any materially adverse change in or
effect on the financial condition, business, operations, assets,
properties, results of operations or prospects of the Company and its
Subsidiaries considered on a consolidated basis.
Company Option Plans: the Company's 1994 and 1996 Incentive Stock
Option Plans and its 1996 Stock Option Plan for Non-Employee Directors.
Company SECT: the Stock Employee Compensation Trust governed by the
Amended and Restated Trust Agreement effective as of March 25, 1998, by
and among the Company and certain individual Directors of the Company
as Trustees.
Company Stock Options: options to purchase Company Common Stock
outstanding under the Company Option Plans.
control (including with correlative meaning, controlled by and under
common control with): as used with respect to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
Environmental Claim: any notice alleging potential liability
(including, without limitation, potential liability for investigatory
costs, cleanup costs, response or remediation costs, natural resources
damages, property damages, personal injuries, fines or penalties)
arising out of, based on or resulting from (a) the presence, or release
of any Material of Environmental Concern at any location, whether or
not owned by that party or any of its Subsidiaries or (b) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law.
Environmental Laws: any and all statutes, regulations and ordinances
relating to the protection of public health, safety or the environment.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate: with respect to a party, any member (other than that
party) of a controlled group of corporations, group of trades or
businesses under common control or affiliated service group that
includes that party (as defined for purposes of Section 414(b), (c) and
(m) of the Code).
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Exchange Act: the Securities Exchange Act of 1934, as amended.
H-S-R Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Letter of Intent: the letter dated May 18, 1998 from the Chairman and
Chief Executive Officer of Parent to the Chairman and Chief Executive
Officer of the Company expressing the companies intention to effect the
merger and related transactions, subject to execution of this Agreement
and other matters.
Materials of Environmental Concern: petroleum and its by-products and
all substances or constituents that are regulated by, or form the basis
of liability under, any Environmental Law.
Parent Material Adverse Effect: any materially adverse change in or
effect on the financial condition, business, operations, assets,
properties, results of operations or prospects of Parent and its
Subsidiaries considered on a consolidated basis.
Permitted Encumbrances: (a) liens for current taxes and other statutory
liens and trusts not yet due and payable or that are being contested in
good faith, (b) liens that were incurred in the ordinary course of
business, such as carriers', warehousemen's, landlords' and mechanics'
liens and other similar liens arising in the ordinary course of
business, (c) liens on personal property leased under operating leases,
(d) liens, pledges or deposits incurred or made in connection with
workmen's compensation, unemployment insurance and other social
security benefits, or securing the performance of bids, tenders,
leases, contracts (other than for the repayment of borrowed money),
statutory obligations, progress payments, surety and appeal bonds and
other obligations of like nature, in each case incurred in the ordinary
course of business, (e) pledges of or liens on manufactured products as
security for any drafts or bills of exchange drawn in connection with
the importation of such manufactured products in the ordinary course of
business, (f) liens under Article 2 of the Uniform Commercial Code that
are special property interests in goods identified as goods to which a
contract refers, (g) liens under Article 9 of the Uniform Commercial
Code that are purchase money security interests, and (h) such
imperfections or minor defects of title, easements, rights-of-way and
other similar restrictions (if any) as are insubstantial in character,
amount or extent, do not materially detract from the value or interfere
with the present or proposed use of the properties or assets of the
party subject thereto or affected thereby, and do not otherwise
adversely affect or impair the business or operations of such party.
Person: an individual, a corporation, an association, a partnership, an
estate, a trust and any other entity or organization.
QTPI: QuesTech Packaging, Inc., a Virginia corporation wholly owned by
the Company.
SEC: the Securities and Exchange Commission, or any Governmental Entity
succeeding to its functions.
Securities Act: the Securities Act of 1933, as amended.
Subsidiary: any corporation, association, or other business entity a
majority (by number of votes on the election of directors or persons
holding positions with similar responsibilities) of the shares of
capital stock (or other voting interests) of which is owned by Parent,
the Company or their respective Subsidiaries, as the case may be.
Except when expressly included as a Subsidiary in any provision of this
Agreement, QTPI shall not be considered a Subsidiary.
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ARTICLE 2
THE MERGER
2.1 Procedure for the Merger. The closing of the transactions
contemplated by this Agreement ("Closing") shall take place at the offices of
Parent in Arlington, Virginia, commencing at 10:00 a.m. local time on
September 30, 1998, or on such other date as the parties may agree after the
satisfaction or waiver of all conditions to the obligations of the parties to
consummate the transactions contemplated hereby ("Closing Date"). At the
Closing, Merger Sub shall be merged, in accordance with section 252 of the
DGCL and section 13.1-722 of the VSCA, with and into the Company, which shall
be and is sometimes referred to herein to as the "Surviving Corporation". The
Merger shall be effected by filing a certificate of merger/articles of
merger, substantially in the form of Exhibit 2.1 attached hereto (the
"Certificate of Merger"), with the Secretary of State of Delaware in
accordance with section 252(c) of the DGCL and with the Secretary of State of
Virginia in accordance with section 13.1-720 of the VSCA. Each certificate
filed shall provide that the merger will be effective at 12:01 am (the
"Effective Time") on the Closing Date.
2.2 Surviving Corporation.
2.2.1 Corporate Existence. The Surviving Corporation shall
continue its corporate existence under the laws of the Commonwealth of
Virginia. The separate corporate existence of Merger Sub shall cease at the
Effective Time.
2.2.2 Certificate of Incorporation and By-laws. The articles
of incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the articles of incorporation of the Surviving
Corporation until the same shall be amended thereafter in accordance with the
VSCA and such articles of incorporation. The by-laws of Company, as in effect
immediately prior to the Effective Time, shall be the by-laws of the
Surviving Corporation until the same shall be amended thereafter in
accordance with the VSCA, the certificate of incorporation of the Surviving
Corporation and such by-laws.
2.2.3 Directors. As of the Effective Time, J. P. London, James
P. Allen, Jeffrey P. Elefante, Warren R. Phillips, and Charles P. Revoile
shall be the directors of the Surviving Corporation, to hold office in
accordance with the certificate of incorporation and by-laws of the Surviving
Corporation.
2.2.4 Effect of the Merger. As of the Effective Time, the
effect of the Merger shall be as provided in this Agreement and the
applicable provisions of the DGCL and the VSCA. Without limiting the
generality of the foregoing, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
2.3 Conversion of Stock.
2.3.1 Stock of the Company. At the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof, each
share of Common Stock, $.05 par value per share, of the Company ("Company
Common Stock") issued and outstanding immediately prior to the Effective Time
(other than Company Common Stock held in the Company's treasury) will be
canceled and extinguished and be converted automatically into the right to
receive payment of the Merger Price Per Share in accordance with the terms
and provisions of this Agreement.
2.3.2 Merger Price Per Share. The Merger Price Per Share shall
be Eighteen Dollars and Thirty-Seven and One-Half Cents ($18.375) plus the
Adjustment Price Per Share.
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2.3.3 Adjustment to Merger Price Per Share.
(a) As soon as practicable after the Company
completes disposition of its entire interest in QTPI, the Company and
Parent shall cooperate to determine the Net Proceeds of Sale (as
defined herein) received by the Company or QTPI on that disposition.
The Net Proceeds of Sale shall be calculated by deducting from the
purchase price received by the Company or QTPI from the sale of QTPI's
stock or assets (a) the costs and expenses (including attorney, broker,
and accounting fees and expenses) incurred in connection with the sale
of QTPI's stock or assets, (b) any liquidation costs of QTPI and (c)
any reserves for any liabilities or obligations of QTPI, fixed,
accrued, contingent or otherwise.
(b) Upon agreement of the Net Proceeds of Sale, the
aggregate Merger Price to be paid by Parent shall be increased or
decreased, as the case may be by the Adjustment Price Per Share, which
shall be calculated by dividing the Net Proceeds of Sale by the Company
Common Stock issued and outstanding immediately prior to the Effective
Time (other than Company Common Stock held in the Company's treasury.)
2.3.4 Stock of Merger Sub. At the Effective Time, each share
of the Common Stock, par value $.01 per share, of Merger Sub ("Merger Sub
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 and become one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
2.4 Payment of Merger Price.
2.4.1 Stockholder List. The Company shall prepare a list (the
"Stockholder List") setting forth the names and addresses of all Persons who
are the record holders of Company Common Stock immediately prior to the
Effective Time (the "Stockholders"), which it shall deliver to Parent at the
Closing.
2.4.2 Payment to Paying Agent. At the Closing, Parent shall
pay the aggregate Merger Price by wire transfer to a bank, trust company, or
similar professional fiduciary appointed jointly by Parent and the Company
(the "Paying Agent"), to be held for distribution to the Stockholders as
provided in this Section 2.4.
2.4.3 Letters of Transmittal. At or promptly after the
Effective Time, the Surviving Corporation will send or deliver to each
Stockholder two or more copies of a Letter of Transmittal in a form mutually
agreed by the parties. Thereafter, the Paying Agent shall pay to each
Stockholder who submits a properly completed and executed Letter of
Transmittal accompanied by surrender of the certificate or certificates for
shares of Company Common Stock for which that Stockholder claims payment, the
aggregate amount of the Purchase Price Per Share to which that Stockholder is
entitled.
2.5 Additional Actions. If, at any time after the Effective Time,
any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest, perfect or confirm in the Surviving Corporation
title to or ownership or possession of any property, right, privilege, power,
franchise or other asset of either Constituent Corporation acquired or to be
acquired by reason of, or as a result of, the Merger, the officers and
directors of the Company and Merger Sub are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action, so long as such action is consistent with this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as
follows:
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3.1 Corporate Status of the Company. Except as set forth on
Schedule 3.1 hereto, the Company and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power to own, operate and lease its properties and to carry on its business
as now being conducted. Except as set forth on Schedule 3.1 hereto, the
Company and its Subsidiaries are duly qualified or licensed to do business as
foreign corporations and are in good standing in all jurisdictions in which
the character of the properties owned or held under lease by each or the
nature of the business transacted by each makes qualification necessary,
except where failure to be so qualified would not have a Company Material
Adverse Effect. All jurisdictions in which the Company and its Subsidiaries
are qualified to do business are set forth on Schedule 3.1 hereto.
3.2 Capital Stock.
3.2.1 Authorized Stock of the Company. The authorized capital
stock of the Company consists of 3,000,000 shares of Company Common Stock, of
which 1,916,004 shares were issued and outstanding (excluding 9,900 shares
held in Treasury) as of March 31, 1998 All of the outstanding shares of
Company Common Stock have been duly authorized and validly issued, were not
issued in violation of any person's preemptive rights, and are fully paid and
nonassessable.
3.2.2 Options and Convertible Securities of the Company.
Except as set forth on Schedule 3.2, there are no outstanding subscriptions,
options, warrants, conversion rights or other rights, securities, agreements
or commitments obligating the Company to issue, sell or otherwise dispose of
shares of its capital stock, or any securities or obligations convertible
into, or exercisable or exchangeable for, any shares of its capital stock.
Since March 31, 1998, the Company has not issued, sold or otherwise disposed
of any shares of its capital stock, other than pursuant to the Company Option
Plans. Except for the Affiliate Agreements and except as set forth on
Schedule 3.2, there are no voting trusts or other agreements or
understandings to which the Company or any Stockholder is a party with
respect to the voting of the shares of Company Common Stock and the Company
is not a party to or bound by any outstanding restrictions, options or other
obligations, agreements or commitments to sell, repurchase, redeem or acquire
any outstanding shares of Company Common Stock or other equity securities of
the Company.
3.3 Subsidiaries. A list of the Company's Subsidiaries and their
respective jurisdictions of incorporation is set forth on Schedule 3.3
hereto. Except as set forth on Schedule 3.3, immediately prior to the
Closing, the Company will beneficially and of record own all of the
outstanding securities of its Subsidiaries (except for directors qualifying
shares, nominee shares and the like), free and clear of all liens, charges,
pledges, security interests, encumbrances, and other restrictions and
agreements with respect thereto. All of the outstanding shares of capital
stock of the Company's Subsidiaries have been duly authorized and validly
issued, were not issued in violation of any person's preemptive rights, and
are fully paid and nonassessable. Except as contemplated by this Agreement,
there are no outstanding subscriptions, options, warrants, conversion rights
or other rights, securities, agreements or commitments obligating the Company
or any of its Subsidiaries to issue, sell or otherwise dispose of any shares
of capital stock, or any securities or obligations convertible into, or
exercisable or exchangeable for, any shares of capital stock of any of the
Company's Subsidiaries.
3.4 Authority for Agreement; Noncontravention.
3.4.1 Authority. The Company has the corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the board of directors of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, other than the approval of the Merger by the vote of the
holders of at least two-thirds of the Company's Common Stock. This Agreement and
the other agreements contemplated hereby to be signed by the
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Company have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to the qualifications that enforcement of
the rights and remedies created hereby and thereby is subject to (a) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other laws of
general application affecting the rights and remedies of creditors and (b)
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
3.4.2 No Conflict. Except as set forth on Schedule 3.4 hereto,
neither the execution and delivery of this Agreement by the Company, nor the
performance by the Company of its obligations hereunder, nor the consummation
by the Company of the transactions contemplated hereby will (a) conflict with
or result in a violation of any provision of the charter documents or by-laws
of the Company or its Subsidiaries, (b) with or without the giving of notice
or the lapse of time, or both, conflict with, or result in any violation or
breach of, or constitute a default under, or result in any right to
accelerate or result in the creation of any lien, charge or encumbrance
pursuant to, or right of termination under, any provision of any note,
mortgage, indenture, lease, instrument or other agreement, permit,
concession, grant, franchise, license, judgment, order, decree, statute,
ordinance, rule or regulation to which the Company or any of its Subsidiaries
is a party or by which any of them or any of their assets or properties is
bound or which is applicable to any of them or any of their assets or
properties. No authorization, consent or approval of, or filing with or
notice to, any United States or foreign governmental or public body or
authority (each a Governmental Entity") is necessary for the execution and
delivery of this Agreement by the Company or the consummation by the Company
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Secretaries of State of the Commonwealth of
Virginia and the State of Delaware, (ii) the filing of the Proxy Statement
with the SEC in accordance with the Exchange Act, (iii) filing with the
Federal Trade Commission and the United States Department of Justice pursuant
to the provisions of the H-S-R Act, and (iv) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not have a Company Material Adverse Effect.
3.5 Financial Statements. The Company has previously furnished
Parent with an accurate and complete copy of the consolidated balance sheets
of the Company as of December 31, 1997, 1996, and 1995 and March 31, 1998 and
the consolidated statements of operations, cash flows and changes in
stockholders' equity of the Company and its Subsidiaries for the respective
years and the three-month period then ended. The annual financial statements
were audited by Grant Thornton LLP, the Company's certified public
accountants. Collectively, the financial statements referred to in the
immediately preceding sentence are sometimes referred to herein as the
"Company Financial Statements" and the audited consolidated balance sheet of
the Company and its Subsidiaries (including QTPI) as of December 31, 1997 is
referred to herein as the "Company Balance Sheet." Each of the balance sheets
included in the Company Financial Statements (including any related notes)
fairly presents in all material respects the financial position of the
Company and its Subsidiaries (including QTPI) as of its date, and the other
statements included in the Company Financial Statements (including any
related notes) fairly present in all material respects the results of
operations, cash flows and stockholders' equity, as the case may be, of the
Company and its Subsidiaries (including QTPI) for the periods therein set
forth, in each case in accordance with United States generally accepted
accounting principles ("GAAP") consistently applied, subject, in the case of
the three-month period, to normal year-end adjustments (all except as
otherwise stated therein).
3.6 Absence of Material Adverse Changes and Undisclosed
Liabilities. Except as set forth on Schedule 3.6 hereto, since the date of
the Company Balance Sheet, (a) the Company has not suffered any Company
Material Adverse Effect, nor has there occurred or arisen any event,
condition or state of facts of any character that could reasonably be
expected to result in a Company Material Adverse Effect and (b) there have
been no dividends or other distributions declared or paid in respect of, or
any repurchase or redemption by the Company of, any of the shares of capital
stock of the Company, or any commitment relating to any of the foregoing.
Except as set forth on Schedule 3.6, neither the Company nor any of its
Subsidiaries (including QTPI) has any material liabilities or obligations,
fixed, accrued, contingent or otherwise (collectively, "Liabilities"), that
are not fully reflected or provided for on, or disclosed in the notes to, the
balance sheets included in the Company Financial Statements,
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except (i) Liabilities incurred in the ordinary course of business since the
date of the Company Balance Sheet, none of which individually or in the
aggregate has had or could reasonably be expected to have a Company Material
Adverse Effect, (ii) Liabilities permitted or contemplated by this Agreement,
and (iii) Liabilities expressly disclosed on the Schedules delivered
hereunder.
3.7 Compliance with Applicable Law, Articles and Bylaws. Each of
the Company and its Subsidiaries has all requisite licenses, permits and
certificates from all Governmental Entities (collectively, "Permits")
necessary to conduct its business as currently conducted, and to own, lease
and operate its properties in the manner currently held and operated, except
as set forth on Schedule 3.7 hereto. All of the Company's and its
Subsidiaries' Permits are in full force and effect. Each of the Company and
its Subsidiaries is in compliance in all material respects with all the terms
and conditions related to such Permits. There are no proceedings in progress,
pending or, to the knowledge of the Company, threatened, which may result in
revocation, cancellation, suspension, or any material adverse modification of
any of such Permits. The business of the Company and its Subsidiaries is not
being conducted in violation of any applicable law, statute, ordinance,
regulation, rule, judgment, decree, order, Permit, concession, grant or other
authorization of any Governmental Entity, except for any violations that, in
the aggregate, do not and could not reasonably be expected to have a Company
Material Adverse Effect or prevent or materially delay the consummation of
the transactions contemplated hereby. Neither the Company nor its
Subsidiaries is in default or violation of any provision of its charter
documents or its by-laws.
3.8 Litigation and Audits. Except for any claim, action, suit or
proceeding set forth on Schedule 3.8 or 3.9 hereto, (a) there is no
investigation by any Governmental Entity with respect to the Company or its
Subsidiaries (including QTPI) pending or, to the knowledge of the Company,
threatened, nor has any Governmental Entity indicated to the Company or any
of its Subsidiaries (including QTPI) an intention to conduct the same; (b)
there is no claim, action, suit, arbitration or proceeding pending or, to the
knowledge of the Company, threatened against or involving the Company or any
of its Subsidiaries (including QTPI), or any of its or their assets or
properties, at law or in equity, or before any arbitrator or Governmental
Entity, that, if adversely determined, either singly or in the aggregate,
would have a Company Material Adverse Effect or prevent or materially delay
the consummation of the transactions contemplated hereby; and (c) there are
no judgments, decrees, injunctions or orders of any Governmental Entity or
arbitrator outstanding against the Company or any of its Subsidiaries
(including QTPI).
3.9 Tax Matters.
3.9.1 Filing of Returns. Except as set forth on Schedule 3.9
hereto, the Company and its Subsidiaries have prepared and filed on a timely
basis with all appropriate governmental authorities all material returns in
respect of Taxes that they are required to file on or prior to the Closing,
and all such returns are correct and complete in all material respects.
3.9.2 Payment of Taxes. Except as set forth on Schedule 3.9,
the Company and its Subsidiaries have paid in full all Taxes due on or before
the Closing and, in the case of Taxes accruing on or before the Closing that
are not due on or before the Closing, the Company has made adequate provision
in its books and records and financial statements for such payment.
3.9.3 Withholding. Except as set forth on Schedule 3.9, the
Company and its Subsidiaries have withheld from each payment made to any of
its present or former employees, officers and directors all amounts required
by law to be withheld and has, where required, remitted such amounts within
the applicable periods to the appropriate governmental authorities.
3.9.4 Assessments. Except as set forth on Schedule 3.9, there
are no assessments of the Company or its Subsidiaries with respect to Taxes
that have been issued and are outstanding. Except as set
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forth on Schedule 3.9, no Governmental Entity has examined or audited the
Company in respect of Taxes. Except as set forth on Schedule 3.9, neither the
Company nor any of its Subsidiaries has received any indication in writing from
any Governmental Entity that an assessment in respect of the Company or any of
its Subsidiaries is proposed. Except with respect to the matters set forth on
Schedule 3.9 hereof, neither the Company nor any of its Subsidiaries has
executed or filed any agreement extending the period of assessment or collection
of any Taxes.
3.9.5 Access to Returns. Parent has been provided with a copy
of or access to all federal, state, local and foreign income Tax returns filed
by the Company and its Subsidiaries since January 1, 1990. Parent has been
provided with a copy of or access to all assessments, extensions and waivers
resulting from any audits of the Company or its Subsidiaries by a Governmental
Entity in respect of Taxes, and all such assessments and related penalties and
interest have been paid in full unless being contested in good faith by the
Company or its Subsidiaries.
3.9.6 Definition of Taxes. As used herein, "Taxes" means all
taxes, levies and other assessments, including all income, sales, use, goods and
services, value added, capital, capital gains, net worth, transfer, profits,
withholding, payroll, employer health, excise, real property and personal
property taxes, and any other taxes, assessments or similar charges in the
nature of a tax including unemployment insurance payments and workers
compensation premiums, together with any installments with respect thereto, and
any interest, fines and penalties, imposed by any Governmental Entity (including
federal, state, municipal and foreign Governmental Entities), and whether
disputed or not.
3.10 Employee Benefit Plans.
3.10.1 List of Plans. Schedule 3.10 hereto contains a correct
and complete list of all pension, profit sharing, retirement, deferred
compensation, welfare, legal services, medical, dental or other employee
benefit or health insurance plans, life insurance or other death benefit
plans, disability, stock option, stock purchase, stock compensation, bonus,
vacation pay, severance pay and other similar plans, programs or agreements,
and every material written personnel policy, relating to any persons employed
by the Company or in which any person employed by the Company is eligible to
participate and which is currently maintained or that was maintained at any
time in the last five calendar years by the Company or any ERISA Affiliate
(collectively, the "Company Plans"). The Company has made available to Parent
complete copies, as of the date hereof, of all of the Company Plans that have
been reduced to writing, together with all documents establishing or
constituting any related trust, annuity contract, insurance contract or other
funding instrument, and summaries of those that have not been reduced to
writing. The Company has made available to Parent complete copies of current
plan summaries, employee booklets, personnel manuals and other material
documents or written materials concerning the Company Plans that are in the
possession of the Company as of the date hereof. Except as set forth on
Schedule 3.10, the Company does not have any "defined benefit plans" as
defined in Section 3(35) of ERISA.
3.10.2 ERISA. Neither the Company nor any ERISA Affiliate of
the Company has incurred any "withdrawal liability" calculated under Section
4211 of ERISA and there has been no event or circumstance which would cause
them to incur any such liability. Neither the Company nor any ERISA Affiliate
of the Company has ever maintained a Company Plan providing health or life
insurance benefits to former employees, other than as required pursuant to
Section 4980B of the Code or to any state law conversion rights. No plan
previously maintained by the Company or its ERISA Affiliates which was
subject to ERISA has been terminated; no proceedings to terminate any such
plan have been instituted within the meaning of Subtitle C of Title IV of
ERISA; and no reportable event within the meaning of Section 4043 of said
Subtitle C of Title IV of ERISA with respect to which the requirement to file
a notice with the Pension Benefit Guaranty Corporation has not been waived
has occurred with respect to any such Company Plan, and no liability to the
Pension Benefit Guaranty Corporation has been incurred by the Company or its
ERISA Affiliates. Except as set forth on Schedule 3.10, with respect to all
the Company Plans, the Company and every ERISA Affiliate of the Company are
in material compliance with all requirements prescribed by all statutes,
regulations, orders or rules currently in effect, and have in all material
respects performed all obligations required to be performed by them. Neither
the Company nor any ERISA Affiliate of the Company, nor any of their
directors, officers, employees or agents, nor any trustee or administrator
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of any trust created under the Company Plans, has engaged in or been a party to
any "prohibited transaction" as defined in Section 4975 of the Code and Section
406 of ERISA which could subject the Company or its Affiliates, directors or
employees or the Company Plans or the trusts relating thereto or any party
dealing with any of the Company Plans or trusts to any tax or penalty on
"prohibited transactions" imposed by Section 4975 of the Code. Except as set
forth on Schedule 3.10, neither the Company Plans nor the trusts created
thereunder has incurred any "accumulated funding deficiency," as such term is
defined in Section 412 of the Code and regulations issued thereunder, whether or
not waived.
3.10.3 Plan Determinations. Each Company Plan intended to
qualify under Section 401(a) of the Code has been determined by the Internal
Revenue Service to so qualify, and the trusts created thereunder have been
determined to be exempt from tax under Section 501(a) of the Code; copies of all
determination letters have been delivered to the Company; and, to the knowledge
of the Company, nothing has occurred since the date of such determination
letters which might cause the loss of such qualification or exemption. With
respect to each Company Plan which is a qualified profit sharing plan, all
employer contributions accrued for plan years ending prior to the Closing under
the Company Plan terms and applicable law have been made.
3.10.4 Funding. Except as set forth on Schedule 3.10:
(a) all contributions, premiums or other payments due
or required to be made to the Company Plans as of the date hereof have
been made as of the date hereof or are properly reflected on the
Company Balance Sheet;
(b) there are no actions, liens, suits or claims
pending or, to the knowledge of the Company, threatened (other than
routine claims for benefits) with respect to any Company Plan;
(c) to the knowledge of the Company, no event has
occurred, and there exists no condition or set of circumstances, which
presents a material risk of a partial termination (within the meaning
of Section 411(d)(3) of the Code) of any Company Plan;
(d) each Company Plan that is a "group health plan"
(as defined in Section 607(1) of ERISA) has been operated at all times
in substantial compliance with the provisions of COBRA and any
applicable, similar state law; and
(e) with respect to any Company Plan that is
qualified under Section 401(k) of the Code, individually and in the
aggregate, no event has occurred, and to the knowledge of the Company,
there exists no condition or set of circumstances in connection with
which the Company could be subject to any liability that is reasonably
likely to have a Company Material Adverse Effect (except liability for
benefits claims and funding obligations payable in the ordinary course)
under ERISA, the Code or any other applicable law.
3.11 Employment-Related Matters.
3.11.1 Labor Relations. Except to the extent set forth on
Schedule 3.11 hereto: (a) neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or other contract or agreement with
any labor organization or other representative of any of the employees of the
Company or any of its Subsidiaries; (b) there is no labor strike, dispute,
slowdown, work stoppage or lockout that is pending or threatened against or
otherwise affecting the Company or any of its Subsidiaries, and neither the
Company nor any of its Subsidiaries has experienced the same since January 1,
1992; (c) neither the Company nor any of its Subsidiaries has closed any plant
or facility, effectuated any layoffs of employees or implemented any early
retirement or separation program at any time from or after January 1, 1992, nor
has the Company or any of its Subsidiaries planned or announced any such action
or program for the future with respect to which the Company has any
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material liability; and (d) all salaries, wages, vacation pay, bonuses,
commissions and other compensation due from the Company or its Subsidiaries to
the employees of the Company and its Subsidiaries before the date hereof have
been paid or accrued in all material respects as of the date hereof.
3.11.2 Employee List. The Company has heretofore delivered to
Parent a list (the "Employee List") dated as of June 1, 1998 containing the
name of each employee of the Company and its Subsidiaries, and each such
employee's position, starting employment date and annual salary. The Employee
List is correct and complete as of the date of the Employee List. No third
party has asserted any claim, or, to the knowledge of the Company, has any
reasonable basis to assert any valid claim, against the Company or its
Subsidiaries that either the continued employment by, or association with,
the Company or its Subsidiaries of any of the present officers or employees
of, or consultants to, the Company or its Subsidiaries contravenes any
agreements or laws applicable to unfair competition, trade secrets or
proprietary information.
3.12 Environmental.
3.12.1 Environmental Laws. Except for matters which,
individually or in the aggregate, would not have a Company Material Adverse
Effect, (a) the Company and each of its Subsidiaries is in compliance with all
applicable Environmental Laws in effect on the date hereof; (b) the Company and
each of its Subsidiaries has not received any written communication that alleges
that the Company or any of its Subsidiaries is not in compliance in all material
respects with all applicable Environmental Laws in effect on the date hereof;
(c) to the knowledge of the Company, there are no circumstances that may prevent
or interfere with compliance in the future with all applicable Environmental
Laws; (d) all material Permits and other governmental authorizations currently
held by the Company and each of its Subsidiaries pursuant to the Environmental
Laws are in full force and effect, the Company and its Subsidiaries are in
compliance with all of the terms of such Permits and authorizations, and no
other Permits or authorizations are required by the Company or its Subsidiaries
for the conduct of its and their business on the date hereof; and (e) the
management, handling, storage, transportation, treatment, and disposal by the
Company and each of its Subsidiaries of all Materials of Environmental Concern
has been in compliance with all applicable Environmental Laws.
3.12.2 Environmental Claims. Except as set forth on Schedule
3.12 hereto and except for Environmental Claims which, individually or in the
aggregate, would not have a Company Material Adverse Effect, there is no
Environmental Claim pending or, to the knowledge of the Company, threatened
against or involving the Company or any of its Subsidiaries or against any
person or entity whose liability for any Environmental Claim the Company or any
of its Subsidiaries has or may have retained or assumed either contractually or
by operation of law.
3.12.3 No Basis for Claims. Except for matters which,
individually or in the aggregate, would not have a Company Material Adverse
Effect, to the knowledge of the Company, there are no past or present actions or
activities by the Company or any of its Subsidiaries, or any circumstances,
conditions, events or incidents, including the storage, treatment, release,
emission, discharge, disposal or arrangement for disposal of any Material of
Environmental Concern, that could reasonably form the basis of any Environmental
Claim against the Company or any of its Subsidiaries or against any person or
entity whose liability for any Environmental Claim the Company or any of its
Subsidiaries may have retained or assumed either contractually or by operation
of law.
3.13 No Broker's or Finder's Fees. Except as disclosed in Schedule
3.13, the Company has not paid or become obligated to pay any fee or commission
to any broker, finder, financial advisor or intermediary in connection with the
transactions contemplated by this Agreement.
3.14 Assets Other Than Real Property.
3.14.1 Title. The Company or one of its Subsidiaries has good
and marketable title to all of the tangible assets shown on the Company Balance
Sheet, in each case, free and clear of any mortgage, pledge, lien,
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security interest, lease or other encumbrance (collectively, "Encumbrances"),
except for (a) assets disposed of since the date of the Company Balance Sheet in
the ordinary course of business and in a manner consistent with past practices,
(b) liabilities, obligations and Encumbrances reflected in the Company Balance
Sheet or otherwise in the Company Financial Statements, (c) Permitted
Encumbrances, and (d) liabilities, obligations and Encumbrances set forth on
Schedule 3.14 hereto.
3.14.2 Accounts Receivable. Except as set forth on Schedule
3.14, all receivables shown on the Company Balance Sheet and all receivables
accrued by the Company since the date of the Company Balance Sheet, have been
collected or are collectible in all material respects in the aggregate amount
shown, less any allowances for doubtful accounts reflected therein, and, in the
case of receivables arising since the date of the Company Balance Sheet, any
additional allowance in respect thereof calculated in a manner consistent with
the allowance reflected in the Company Balance Sheet.
3.14.3 Condition. All material plant, equipment and personal
property owned by the Company and its subsidiaries and regularly used in its and
their businesses is in good operating condition and repair, ordinary wear and
tear excepted.
3.15 Real Property.
3.15.1 Company Real Property. Neither the Company nor any of
its Subsidiaries owns any real property.
3.15.2 Company Leases. Schedule 3.15 hereto lists all of the
Company Leases. Complete copies of the Company Leases, and all material
amendments thereto (which are identified on Schedule 3.15), have been made
available by the Company to Parent. The Company Leases grant leasehold estates
free and clear of all Encumbrances granted by or caused by the actions of the
Company. To the knowledge of the Company, the Company Leases are in full force
and effect and are binding and enforceable against each of the parties thereto
in accordance with their respective terms. Except as set forth on Schedule 3.15,
neither the Company nor any of its Subsidiaries, nor, to the knowledge of the
Company, any other party to a Company Lease, has committed a material breach or
default under any Company Lease, nor has there occurred any event that with the
passage of time or the giving of notice or both would constitute such a breach
or default, nor are there any facts or circumstances that would reasonably
indicate that the Company or any of its Subsidiaries is likely to be in material
breach or default thereunder. Schedule 3.15 correctly identifies each Company
Lease the provisions of which would be materially and adversely affected by the
transactions contemplated hereby and each Company Lease that requires the
consent of any third party in connection with the transactions contemplated
hereby. No material construction, alteration or other leasehold improvement work
with respect to the real property covered by any of the Company Leases remains
to be paid for or to be performed by the Company or any of its Subsidiaries. No
Company Leases have an unexpired term which including any renewal or extensions
of such term provided for in the Company Lease could exceed fifty years.
3.15.3 Condition. All buildings, structures and fixtures, or
parts thereof, used by the Company or any of its Subsidiaries in the conduct of
its business are in good operating condition and repair, ordinary wear and tear
excepted, and are insured with coverages that are usual and customary for
similar properties and similar businesses or are required, pursuant to the terms
of the Company Leases, to be insured by third parties.
3.16 Agreements, Contracts and Commitments.
3.16.1 Company Agreements. Except as set forth on Schedule
3.16 hereto or any other Schedule hereto, neither the Company nor any of its
Subsidiaries is a party to:
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(a) any bonus, deferred compensation, pension,
severance, profit-sharing, stock option, employee stock purchase or
retirement plan, contract or arrangement or other employee benefit plan
or arrangement;
(b) any employment agreement with any present
employee, officer, director or consultant (or former employees,
officers, directors and consultants to the extent there remain at the
date hereof obligations to be performed by the Company or any of its
Subsidiaries);
(c) any agreement for personal services or employment
with a term of service or employment specified in the agreement or any
agreement for personal services or employment in which the Company or
any of its Subsidiaries has agreed on the termination of such agreement
to make any payments greater than those that would otherwise be imposed
by law;
(d) any agreement of guarantee or indemnification in
an amount that is material to the Company and its Subsidiaries taken as
a whole;
(e) any agreement or commitment containing a covenant
limiting or purporting to limit the freedom of the Company or any of
its Subsidiaries to compete with any person in any geographic area or
to engage in any line of business;
(f) any lease other than the Company Leases under
which the Company or any of its Subsidiaries is lessee that involves
payments of $50,000 or more per annum or is material to the conduct of
the business of the Company;
(g) any joint venture or profit-sharing agreement
(other than with employees);
(h) except for trade indebtedness incurred in the
ordinary course of business and equipment leases entered into in the
ordinary course of business, any loan or credit agreements providing
for the extension of credit to the Company or any of its Subsidiaries
or any instrument evidencing or related in any way to indebtedness
incurred in the acquisition of companies or other entities or
indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or
otherwise that individually is in the amount of $50,000 or more;
(i) any license agreement, either as licensor or
licensee, involving payments (including past payments) of $50,000 in
aggregate or more, or any material distributor, dealer, reseller,
franchise, manufacturer's representative, or sales agency or any other
similar material contract or commitment;
(j) any agreement granting exclusive rights to, or
providing for the sale of, all or any portion of the Company
Proprietary Rights;
(k) any agreement or arrangement providing for the
payment of any commission based on sales other than to employees of the
Company or any of its Subsidiaries;
(l) any agreement for the sale by the Company or its
Subsidiaries of materials, products, services or supplies that involves
future payments to the Company or its Subsidiaries of more than
$50,000;
(m) any agreement for the purchase by the Company or
any of its Subsidiaries of any materials, equipment, services, or
supplies, that either (i) involves a binding commitment by the Company
or any of its Subsidiaries to make future payments in excess of $50,000
and cannot be terminated by it
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without penalty upon less than three months' notice or (ii) was not
entered into in the ordinary course of business;
(n) any agreement or arrangement with any third party
to develop any intellectual property or other asset expected to be used
or currently used or useful in the business of the Company and its
Subsidiaries;
(o) any agreement or commitment for the acquisition,
construction or sale of fixed assets owned or to be owned by the
Company or any of its Subsidiaries that involves future payments by it
of more than $50,000;
(p) any agreement or commitment to which present or
former directors, officers or Affiliates of the Company (or directors
or officers of an Affiliate of the Company) are also parties;
(q) any agreement not described above (ignoring,
solely for this purpose, any dollar amount thresholds in those
descriptions) involving the payment or receipt by the Company or any of
its Subsidiaries of more than $100,000, other than the Company Leases;
or
(r) any agreement not described above that was not
made in the ordinary course of business and that is material to the
financial condition, business, operations, assets, results of
operations or prospects of the Company and its Subsidiaries taken as a
whole.
3.16.2 Validity. Except as set forth on Schedule 3.16, to the
knowledge of the Company, all contracts, leases, instruments, licenses and other
agreements required to be set forth on Schedule 3.16 are valid and in full force
and effect and the Company has not, nor, to the knowledge of the Company, has
any other party thereto, breached any provision of, or defaulted under the terms
of any such contract, lease, instrument, license or other agreement, except for
any breaches or defaults that, in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect or have been cured or waived.
Schedule 3.16 identifies each contract and other document set forth on Schedule
3.16 or disclosed by the Company on another Schedule hereto that requires the
consent of a third party in connection with the transactions contemplated
hereby.
3.17 Intellectual Property.
3.17.1 Right to Intellectual Property. Except as set forth on
Schedule 3.17 hereto, the Company and its Subsidiaries own, or have perpetual,
fully paid, worldwide rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, computer software programs or applications (in
both source code and object code form), and tangible or intangible proprietary
information or material (excluding Commercial Software) that are used in the
business of the Company and its Subsidiaries as currently conducted (the
"Company Proprietary Rights").
3.17.2 No Conflict. Set forth on Schedule 3.17 is a complete
list of all patents, trademarks, registered copyrights, trade names and service
marks, and any applications therefor, included in the Company Proprietary
Rights, specifying, where applicable, the jurisdictions in which each such
Company Proprietary Right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners. Except as set forth on Schedule 3.17, none of the Company's or its
Subsidiaries' currently marketed software products has been registered for
copyright protection with the United States Copyright Office or any foreign
offices nor has the Company or any of its Subsidiaries been requested to make
any such registration. Set forth on Schedule 3.17 is a complete list of all
material licenses, sublicenses and other agreements as to which the Company or
any of its Subsidiaries is a party and pursuant to which the Company or any of
its Subsidiaries or any other person is authorized to use any Company
Proprietary Right (excluding End-User Licenses) or other trade secret material
to the business of the Company and
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its Subsidiaries, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty
and the term thereof. Neither the Company nor any of its Subsidiaries is in
violation of any license, sublicense or agreement described on such list
except such violations as do not materially impair the Company or its
Subsidiaries' rights under such license, sublicense or agreement. Except as
disclosed in this Article 3, the execution and delivery of this Agreement by
the Company, and the consummation of the transactions contemplated hereby,
will neither cause the Company nor any of its Subsidiaries to be in violation
or default under any such license, sublicense or agreement, nor entitle any
other party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement. Except as set forth on Schedule
3.17, the Company or one of its Subsidiaries is the sole and exclusive owner
or licensee of, with all right, title and interest in and to (free and clear
of any and all liens, claims and encumbrances), the Company Proprietary
Rights, and has sole and exclusive rights (and is not contractually obligated
to pay any compensation to any third party in respect thereof) to the use
thereof or the material covered thereby in connection with the services or
products in respect of which the Company Proprietary Rights are being used.
No claims with respect to the Company Proprietary Rights have been asserted
or, to the knowledge of the Company, are threatened by any person nor are
there any valid grounds for any bona fide claims to the effect that the
manufacture, sale, licensing or use of any of the products of the Company and
its Subsidiaries as now manufactured, sold or licensed or used or proposed
for manufacture, use, sale or licensing by the Company and its Subsidiaries
infringes on any copyright, patent, trademark, service mark or trade secret,
against the use by the Company or any of its Subsidiaries of any trademarks,
service marks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
or any of its Subsidiaries' business as currently conducted or as proposed to
be conducted by the Company or any of its Subsidiaries, or challenging the
ownership by the Company or any of its Subsidiaries, or the validity or
effectiveness of any of the Company Proprietary Rights. All material
registered trademarks, service marks and copyrights held by the Company and
its Subsidiaries are valid and subsisting. To the knowledge of the Company
there is no material unauthorized use, infringement or misappropriation of
any of the Company Proprietary Rights by any third party, including any
employee or former employee of the Company or any of its Subsidiaries. No
Company Proprietary Right or product of the Company or any of its
Subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by the Company or
any of its Subsidiaries. Except as set forth in Schedule 3.17, neither the
Company nor any of its Subsidiaries has entered into any agreement (other
than exclusive distribution agreements) under which the Company or its
Subsidiaries are restricted from selling, licensing or otherwise distributing
any of its products to any class of customers, in any geographic area, during
any period of time or in any segment of the market. The Company's products,
packaging and documentation contain copyright notices sufficient to maintain
copyright protection on the copyrighted portions of the Company Proprietary
Rights.
3.17.3 Employee Agreements. Except as set forth on Schedule
3.17, each employee, officer and consultant of the Company and its
Subsidiaries has executed a confidentiality agreement in substantially the
form attached hereto as Schedule 3.17.3, providing the Company or one of its
Subsidiaries with title and ownership to the Company Proprietary Rights
developed or used by the Company and its Subsidiaries in their business. No
employee, officer or consultant of the Company and its Subsidiaries is in
violation of any term of any employment or consulting contract, proprietary
information and inventions agreement, non-competition agreement, or any other
contract or agreement relating to the relationship of any such employee,
officer or consultant with the Company or any previous employer.
3.18 Insurance Contracts. Schedule 3.18 hereto lists all contracts
of insurance and indemnity in force at the date hereof with respect to the
Company and its Subsidiaries. Such contracts of insurance and indemnity and
those shown in other Schedules to this Agreement (collectively, the "Company
Insurance Contracts") insure against such risks, and are in such amounts, as
appropriate and reasonable considering the Company and its Subsidiaries'
property, business and operations. All of the Company Insurance Contracts are
in full force and effect, with no default thereunder by the Company or its
Subsidiaries which could permit the insurer to deny payment of claims
thereunder. The Company has not received notice from any of its insurance
carriers that any insurance premiums will be materially increased in the
future or that any insurance coverage provided under the Company Insurance
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Contracts will not be available in the future on substantially the same terms as
now in effect. The Company has not received or given a notice of cancellation
with respect to any of the Company Insurance Contracts.
3.19 Banking Relationships. Schedule 3.19 hereto shows the names
and locations of all banks and trust companies in which the Company or any of
its Subsidiaries has accounts, lines of credit or safety deposit boxes and,
with respect to each account, line of credit or safety deposit box, the names
of all persons authorized to draw thereon or to have access thereto.
3.20 Proxy Statement. The information supplied by the Company for
inclusion in the proxy statement/prospectus to be sent to the stockholders of
the Company in connection with the meeting of the Company's stockholders to
consider the Merger (the "Company Meeting") (such proxy statement/prospectus as
amended or supplemented is referred to herein as the "Proxy Statement") shall
not, on the date the Proxy Statement is first mailed to the Company's
stockholders, at the time of the Company Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Meeting which has become false or misleading. The Proxy
Statement will comply as to form with the provisions of the Exchange Act and the
rules and regulations thereunder. If at any time prior to the Effective Time any
event relating to the Company or any of its affiliates, officers or directors
should be discovered by the Company which should be set forth in an amendment or
a supplement to the Proxy Statement, the Company shall promptly inform Parent.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained in any of the foregoing documents.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to the
Company as follows:
4.1 Corporate Status of Parent and its Subsidiaries. Parent and each
of its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with the
requisite corporate power to own, operate and lease its properties and to carry
on its business as now being conducted.
4.2 Authorized Stock of Merger Sub. The authorized capital stock of
Merger Sub consists of 100 shares of Merger Sub Stock, of which all 100 shares
are issued and outstanding. All of the outstanding shares of Merger Sub Stock
have been duly authorized and validly issued, were not issued in violation of
any person's preemptive rights, and are fully paid and nonassessable.
4.3 Authority for Agreement; Noncontravention.
4.3.1 Authority of Parent. Each of Parent and Merger Sub has
the corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by the boards of directors of Parent and Merger Sub
and the stockholder of Merger Sub and no other corporate proceedings on the part
of Parent or Merger Sub are necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
This Agreement and the other agreements contemplated hereby to be signed by
Parent or Merger Sub have been duly executed and delivered by Parent and Merger
Sub, as the case may be, and constitute valid and binding obligations of Parent
and Merger Sub, as the case may be, enforceable against Parent and Merger Sub in
accordance with their terms, subject to the qualifications that enforcement of
the rights and remedies created hereby and thereby are subject to (a)
bankruptcy,
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insolvency, reorganization, fraudulent conveyance, moratorium and other laws
of general application affecting the rights and remedies of creditors and (b)
general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law).
4.3.2 No Conflict. Except as set forth on Schedule 4.3.2
hereto, neither execution and delivery of this Agreement by Parent or Merger
Sub, nor the performance by Parent or Merger Sub of its obligations
hereunder, nor the consummation by Parent or Merger Sub of the transactions
contemplated hereby will (a) conflict with or result in a violation of any
provision of the charter documents or by-laws of Parent or its Subsidiaries
(including Merger Sub), or (b) with or without the giving of notice or the
lapse of time, or both, conflict with, or result in any violation or breach
of, or constitute a default under, or result in any right to accelerate or
result in the creation of any lien, charge or encumbrance pursuant to, or
right of termination under, any provision of any note, mortgage, indenture,
lease, instrument or other agreement, Permit, concession, grant, franchise,
license, judgment, order, decree, statute, ordinance, rule or regulation to
which Parent, Merger Sub or any of Parent's other Subsidiaries is a party or
by which any of them or any of their assets or properties is bound or which
is applicable to any of them or any of their assets or properties. No
authorization, consent or approval of, or filing with or notice to, any
Governmental Entity is necessary for the execution and delivery of this
Agreement by Parent or Merger Sub or the consummation by Parent or Merger Sub
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Secretaries of State of the State of Delaware
and the Commonwealth of Virginia, (iii) filing with the Federal Trade
Commission and the United States Department of Justice pursuant to the
provisions of the H-S-R Act, and (iii) such other consents, authorizations,
filings, approvals and registrations which if not obtained or made would not
have a Parent Material Adverse Effect.
4.4 SEC Statements, Reports and Documents. Parent has timely filed
all required forms, reports, statements and documents with the SEC since
January 1, 1993. Parent heretofore has delivered or made available to counsel
for the Company true and complete copies of (a) its Annual Reports on Form
10-K for the fiscal years ended June 30, 1996 and 1997, respectively, (b) its
Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30,
1996, December 31, 1996, September 30,1997, December 31, 1997 and March 31,
1998, respectively, (c) all proxy statements relating to Parent's meetings of
stockholders (whether annual or special) held since June 30, 1996, (d) all
other forms, reports, statements and documents filed or required to be filed
by it with the SEC since June 30, 1996, and (e) all amendments and
supplements to all such reports and registration statements filed by Parent
with the SEC (the documents referred to in clauses (a), (b), (c), (d) and (e)
being hereinafter referred to as the "Parent Reports"). As of their
respective dates, the Parent Reports complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder, and did not contain any
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, in light of
the circumstances under which they were made, not misleading. The financial
statements (including any related notes) of Parent included in the Parent
Reports were prepared in conformity with GAAP applied on a consistent basis
(except as otherwise stated in the financial statements), and present fairly
the consolidated financial position, results of operations and changes in
financial position of Parent and its consolidated Subsidiaries as of the
dates and for the periods indicated, subject, in the case of unaudited
interim consolidated financial statements, to (i) the absence of certain
notes thereto and (ii) normal year-end audit adjustments which are not in the
aggregate material. The consolidated balance sheet of Parent and its
subsidiaries at June 30, 1997, including the notes thereto, is hereinafter
referred to as the "Parent Balance Sheet."
4.5 Absence of Material Adverse Changes. Since the date of the Parent
Balance Sheet, Parent has not suffered any Parent Material Adverse Effect, nor
has there occurred or arisen any event, condition or state of facts of any
character that could reasonably be expected to result in a Parent Material
Adverse Effect.
4.6 Litigation and Audits. Except for any claim, action, suit or
proceeding disclosed in the Parent Reports or set forth on Schedule 4.6 hereto,
(a) there is no investigation by any Governmental Entity with respect to Parent
or its Subsidiaries pending or, to the knowledge of Parent, threatened, nor has
any Governmental Entity
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indicated to Parent or any of its Subsidiaries an intention to conduct the same,
and (b) there is no claim, action, suit, arbitration or proceeding pending or
threatened against or involving Parent or any of its Subsidiaries, or any of its
or their assets or properties, at law or in equity, or before any arbitrator or
Governmental Entity, in each case that, if adversely determined, either singly
or in the aggregate, would prevent or materially delay the consummation of the
transactions contemplated hereby.
4.7 Proxy Statement. The information provided by Parent or Merger Sub
for inclusion in the Proxy Statement shall not, on the date the Proxy Statement
is first mailed to the Company's stockholders, at the time of the Company
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not false or misleading; or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Company Meeting which has
become false or misleading. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in an amendment or a supplement to the Proxy Statement, Parent or Merger
Sub shall promptly inform the Company. Notwithstanding the foregoing, Parent and
Merger Sub make no representation or warranty with respect to any information
supplied by the Company which is contained in any of the foregoing documents.
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. Except as set forth on
Schedule 5.1 hereto, between the date of this Agreement and the Effective
Time or the date, if any, on which this Agreement is earlier terminated
pursuant to its terms, the Company and each of its Subsidiaries shall, except
to the extent that Parent shall otherwise consent in writing, (i) carry on
its business in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted, pay its debts and taxes when due subject
to good faith disputes over such debts or taxes, pay or perform other
material obligations when due subject to good faith disputes over such
obligations, and use all reasonable efforts consistent with past practices
and policies to preserve intact the Company's present business organizations,
keep available the services of its present officers and employees and
preserve its relationships with customers, suppliers and others having
business relationships with it, to the end that the Company's and each of its
Subsidiaries' goodwill and ongoing business be unimpaired at the Effective
Time, and (ii) promptly notify Parent of any event or occurrence not in the
ordinary course of business of the Company and each of its Subsidiaries which
will have or could reasonably be expected to have a Company Material Adverse
Effect. In addition, between the date of this Agreement and the Effective
Time or the date, if any, on which this Agreement is earlier terminated
pursuant to its terms, the Company and each of its Subsidiaries shall not,
except to the extent that Parent shall otherwise consent in writing:
(a) amend its charter documents or by-laws;
(b) declare or pay any dividends or distributions on
the Company's outstanding shares of capital stock nor purchase, redeem
or otherwise acquire for consideration any shares of the Company's
capital stock or other securities except in accordance with agreements
existing as of the date hereof or as permitted under the Company Option
Plans;
(c) issue or sell any shares of its capital stock,
effect any stock split or otherwise change its capitalization as it
exists on the date hereof, or issue, grant, or sell any options, stock
appreciation or purchase rights, warrants, conversion rights or other
rights, securities or commitments obligating it to issue or sell any
shares of its capital stock, or any securities or obligations
convertible into, or exercisable or exchangeable for, any shares of its
capital stock, other than the issuance of shares of Company Common
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Stock pursuant to the conversion, exercise or exchange of securities
therefor outstanding as of the date hereof in accordance with their
terms;
(d) borrow or agree to borrow any funds or
voluntarily incur, or assume or become subject to, whether directly or
by way of guaranty or otherwise, any obligation or Liability, except
obligations incurred in the ordinary course of business consistent with
past practices;
(e) pay, discharge or satisfy any claim, obligation
or Liability in excess of $50,000 (in any one case) or $100,000 (in the
aggregate), other than the payment, discharge or satisfaction in the
ordinary course of business of obligations reflected on or reserved
against in the Company Balance Sheet, or incurred since the date of the
Company Balance Sheet in the ordinary course of business consistent
with past practices or in connection with this transaction;
(f) except as required by applicable law, adopt or
amend in any material respect, any agreement or plan (including
severance arrangements) for the benefit of its employees;
(g) sell, mortgage, pledge or otherwise encumber or
dispose of any of its assets which are material, individually or in the
aggregate, to the business of the Company and its Subsidiaries, except
in the ordinary course of business consistent with past practices;
(h) acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets
of, any business or any corporation, partnership interest, association
or other business organization or division thereof, or otherwise
acquire any assets which are material, individually or in the
aggregate, to the business of the Company and its Subsidiaries, except
in the ordinary course of business consistent with past practices;
(i) subject to Section 5.1(o), increase the following
amounts payable or to become payable: (i) the salary of any of its
directors or officers, other than increases in the ordinary course of
business consistent with past practices and not exceeding, in any case,
ten percent (10%) of the director's or officer's salary on the date
hereof, (ii) any other compensation of its directors or officers,
including any increase in benefits under any bonus, insurance, pension
or other benefit plan made for or with any of those persons, other than
increases that are provided in the ordinary course of business
consistent with past practices to broad categories of employees and do
not discriminate in favor of the aforementioned persons, and (iii) the
compensation of any of its other employees, consultants or agents
except in the ordinary course of business consistent with past
practices;
(j) dispose of, permit to lapse, or otherwise fail to
preserve the rights of the Company or any of its Subsidiaries to use
the Company Proprietary Rights or enter into any settlement regarding
the breach or infringement of, any Company Proprietary Rights, or
modify any existing rights with respect thereto, other than in the
ordinary course of business consistent with past practices, and other
than any such disposal, lapse, failure, settlement or modification that
does not have and could not reasonably be expected to have a Company
Material Adverse Effect;
(k) sell, or grant any right to exclusive use of, all
or any part of the Company Proprietary Rights;
(l) enter into any contract or commitment or take any
other action that is not in the ordinary course of its business or
could reasonably be expected to have an adverse impact on the
transactions contemplated hereunder or that would have or could
reasonably be expected to have a Company Material Adverse Effect;
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(m) amend in any material respect any agreement to
which the Company or any of its Subsidiaries is a party the amendment
of which will have or could reasonably be expected to have a Company
Material Adverse Effect;
(n) waive, release, transfer or permit to lapse any
claims or rights (i) that has a value, or involves payment or receipt
by it, of more than $50,000 or (ii) the waiver, release, transfer or
lapse of which would have or could reasonably be expected to have a
Company Material Adverse Effect;
(o) take any action that would materially decrease
the Company's net worth, provided, however, that payments by the
Company of reasonable legal and accounting fees related to the Merger
and/or the disposition of QTPI shall not be deemed to be a breach of
this Section 5.1(o);
(p) make any change in any method of accounting or
accounting practice other than changes required to be made in order
that the Company's financial statements comply with GAAP; or
(q) agree, whether in writing or otherwise, to take
any action described in this Section 5.1.
5.2 Conduct of Business of Parent. Between the date of this Agreement
and the Effective Time or the date, if any, on which this Agreement is earlier
terminated pursuant to its terms, Parent and each of its Subsidiaries shall not,
except to the extent that the Company shall otherwise consent in writing, take
any action that would materially impair Parent's ability to pay the aggregate
Merger Price or otherwise to perform its obligations under this Agreement.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Proxy Statement. As promptly as practicable after the execution of
this Agreement, the Company shall prepare and file with the SEC the Proxy
Statement. The Proxy Statement shall include the recommendation of the Board of
Directors of the Company in favor of the Merger which shall not be withdrawn,
modified or withheld except in compliance with the fiduciary duties of the
Company's Board under applicable law.
6.2 Meeting of Stockholders. Promptly after execution of this
Agreement, the Company shall take all action necessary in accordance with the
VSCA and its certificate of incorporation and by-laws to convene the Company
Meeting to be held as promptly as practicable for the purpose of voting upon
this Agreement and the Merger.
6.3 Amendment of Stock Options. Promptly after execution of this
Agreement, the Company shall take such action as may be practicable under the
terms of all outstanding Company Stock Options and the Company SECT to ensure
that at the Effective Time, each Company Stock Option then outstanding shall be
converted into the right to receive payment from the Company SECT of the amount
of the excess, if any, of the Merger Price Per Share for each share of Company
Common Stock for which that Company Stock Option was theretofore exercisable
over the exercise price per share for each such share of Company Common Stock.
It is understood that, since the Company will not receive the exercise price for
any Company Stock Option amended as provided in this paragraph, there will be no
Principal Reduction (as defined in section 2.3 of the Amended and Restated Trust
Agreement effective as of March 25, 1998) with respect to any payment by the
Company SECT to the holder of any Company Stock Option so converted.
6.4 Disposition of QTPI. As promptly as practicable after execution of
this Agreement, the Company shall take action to dispose entirely of its
interest in QTPI.
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6.5 Exclusivity. From and after the date of this Agreement until the
earlier of the Effective Time and termination of this Agreement in accordance
with Article 9 hereof, the Company and its Subsidiaries will not, directly or
indirectly, through their respective affiliates, agents, officers and directors,
directly or indirectly, solicit, initiate, or participate in discussions or
negotiations or otherwise cooperate in any way with, or provide any information
to, any corporation, partnership, person, or other entity or group concerning
any tender offer, exchange offer, merger, business combination, sale of
substantial assets, sale of shares of capital stock, or similar transaction
involving the Company or any of its Subsidiaries (all such transactions being
referred to herein as "Acquisition Proposals"). Notwithstanding the foregoing,
the Company may furnish information concerning its business, properties, or
assets to and enter into negotiations with a corporation, partnership, person,
or other entity or group, if the party receives an unsolicited Acquisition
Proposal and outside counsel to the Company advises the Company's Board of
Directors in writing that the Board's fiduciary responsibilities under
applicable law require that such information be provided or negotiations be held
with the person presenting the Acquisition Proposal in order to avoid a breach
of such fiduciary responsibilities.
6.6 Expenses. Each party hereto shall be responsible for its own costs
and expenses in connection with the Merger, including fees and disbursements of
consultants, investment bankers and other financial advisors, counsel and
accountants.
6.7 Affiliate Agreements. Set forth on Schedule 6.7 is a list of those
Affiliates of the Company who have executed agreements in the form attached
hereto as Exhibit 6.7 (the "Affiliate Agreements"), effective simultaneously
with the effectiveness of this Agreement.
6.8 Access and Information. The Company shall afford to Parent and to
its officers, employees, accountants, counsel and other authorized
representatives full and complete access, upon 24 hours advance telephone
notice, during regular business hours, throughout the period prior to the
earlier of the Effective Time or the termination of this Agreement pursuant to
its terms, to its offices, properties, books and records and those of its
Subsidiaries, and shall use reasonable efforts to cause its representatives and
independent public accountants to furnish to Parent such additional financial
and operating data and other information as to its business, customers, vendors
and properties and those of its Subsidiaries as Parent may from time to time
reasonably request.
6.9 Public Disclosure. Except as otherwise required by law, any press
release or other public disclosure of information regarding the proposed
transaction (including the negotiations with respect to the Merger and the terms
and existence of this Agreement) shall be developed by Parent, subject to the
Company's review. The Company and Parent agree that each party's non-disclosure
obligations contained in the Letter of Intent shall remain in full force and
effect in accordance with the terms of such Agreement.
6.10 No Solicitation of Employees. Parent and the Company agree that
between the date of this Agreement and the Effective Time or the date one year
after the date, if any, on which this Agreement is earlier terminated pursuant
to its terms, neither party shall solicit, induce or recruit any of the other
party's employees to leave their employment, otherwise than in response to
general advertisements or solicitations not directed specially to employees of
the other party.
6.11 Directors and Officers Indemnification. From and after the
Effective Time, Parent and the Surviving Corporation shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
hereof, an officer or director of the Company (the "Indemnified Parties") to the
same extent that such Indemnified Parties are currently indemnified by the
Company pursuant to the Company's Certificate of Incorporation and Bylaws and
the VSCA for acts or omissions in their capacities as officers or directors of
the Company occurring on or prior to the Effective Time.
6.12 Reasonable Efforts. Subject to terms and conditions herein
provided, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
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necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement. Without limiting the generality of the foregoing, the Company
and Parent each will use all reasonable efforts to obtain all approvals,
authorizations, consents and waivers from, and give all notices to, any public
or private third parties that are necessary on its part in order to effect the
transactions contemplated hereby.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 Conditions Precedent to the Obligations of Each Party. The
obligations of the parties hereto to effect the Merger shall be subject to the
fulfillment at or prior to the Closing of the following conditions:
7.1.1 Stockholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved by the requisite vote
under applicable law of the stockholders of the Company.
7.1.2 Hart-Scott-Rodino Compliance. All applicable waiting
periods (and any extensions thereof) under the H-S-R Act shall have expired or
otherwise been terminated.
7.1.3 No Injunction. No injunction or restraining or other
order issued by a court of competent jurisdiction that prohibits or materially
restricts the consummation of the Merger or the other transactions contemplated
hereby shall be in effect (each party agreeing to use all reasonable efforts to
have any injunction or other order immediately lifted), and no action or
proceeding shall have been commenced or threatened in writing seeking any
injunction or restraining or other order that seeks to prohibit, restrain,
invalidate or set aside consummation of the Merger or any of the other
transactions contemplated hereby.
7.1.4 Illegality. There shall not have been any action taken,
and no statute, rule or regulation shall have been enacted, by any state or
federal government agency that would prohibit or materially restrict the
consummation of the Merger or the other transactions contemplated hereby.
7.2 Conditions Precedent to Obligation of Parent and Merger Sub to
Effect the Merger. The obligation of Parent and Merger Sub to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
7.2.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Company Material
Adverse Effect; and the Company shall have delivered to Parent a certificate to
that effect, dated the date of the Closing and signed on behalf of the Company
by the President and Chief Financial Officer of the Company.
7.2.2 Agreements and Covenants. The Company shall have
performed in all material respects all of its agreements and covenants set forth
herein that are required to be performed at or prior to the Effective Time; and
the Company shall have delivered to Parent a certificate to that effect, dated
the date of the Closing and signed on behalf of the Company by the President and
Chief Financial Officer of the Company.
7.2.3 Legal Opinion. Parent and Merger Sub shall have received
an opinion from Michael P. Rivera, counsel to the Company, in substantially the
form attached hereto as Exhibit 7.2.3 hereto.
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7.2.4 Closing Documents. The Company shall have delivered to
Parent and Merger Sub such closing documents as Parent shall reasonably request
(other than additional opinions of counsel).
7.2.5 Third Party Consents. All third party consents or
approvals listed in Schedule 7.2.5 hereto shall have been obtained by the
Company and shall be effective and shall not have been suspended, revoked, or
stayed by action of any such third party.
7.2.6 Material Adverse Effect. Since the date of this
Agreement, the Company shall not have suffered a Company Material Adverse
Effect.
7.2.7 Company Closing Certificate. The Company shall have
delivered the Company Closing Certificate to Parent.
7.2.8 Stockholder List. The Company shall have delivered to
Parent the Stockholder List.
7.2.9 Disposition of QTPI. The Company shall have disposed of
its entire interest in QTPI and shall have no continuing agreement, obligation,
liability or undertaking with respect to QTPI or any future interest in QTPI.
The Company and Parent shall have agreed in good faith on the determination of
the Adjustment Price Per Share.
7.2.10 Amendment of Stock Options. The Company shall have
completed the action to modify the terms of outstanding Company Stock Options as
provided in Section 6.3 hereof.
7.3 Conditions to Obligations of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing of the following additional conditions:
7.3.1 Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Effective Time, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Parent Material
Adverse Effect; and Parent shall have delivered to the Company a certificate to
that effect, dated the date of the Closing and signed on behalf of Parent by the
President and Chief Financial Officer of Parent.
7.3.2 Agreements and Covenants. Parent and Merger Sub shall
have performed in all material respects all of their agreements and covenants
set forth herein that are required to be performed at or prior to the Effective
Time; and Parent shall have delivered to the Company a certificate to that
effect, dated the date of the Closing and signed on behalf of Parent by the
President and Chief Financial Officer of Parent.
7.3.3 Legal Opinion. The Company shall have received opinions
from Jeffrey P. Elefante, Executive Vice President of Parent, and Foley, Hoag &
Eliot LLP, counsel to Parent, in substantially the forms attached hereto as
Exhibit 7.3.3.
7.3.4 Closing Documents. Parent and Merger Sub shall have
delivered to the Company such closing documents as the Company shall reasonably
request (other than additional opinions of counsel).
7.3.5 Material Adverse Effect. Since the date of this
Agreement, Parent shall not have suffered a Parent Material Adverse Effect.
A-24
<PAGE>
7.3.6 Parent Closing Certificate. The Parent shall have
delivered the Parent Closing Certificate to Company.
7.3.7 Payment of Purchase Price. The Parent shall have
tendered the aggregate Merger Price pursuant to the provisions of Section 2.4.2
hereof.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS
8.1 Survival of Representations.
8.1.1 The Company's Representations. All representations and
warranties made by the Company in this Agreement or any certificate or other
writing delivered by the Company pursuant hereto or in connection herewith shall
survive the Closing and any investigation at any time made by or on behalf of
Parent and shall terminate on the first anniversary of the Closing Date (except
that Parent claims pending on the first anniversary of the Closing Date shall
continue until resolved. The covenants made by the Company in this Agreement or
any certificate or other writing delivered by the Company or any of its
Affiliates pursuant hereto or in connection herewith shall survive the Closing
and any investigation at any time made by or on behalf of Parent.
8.1.2 Parent's Representations. All representations and
warranties made by Parent and Merger Sub in this Agreement or any certificate or
other writing delivered by Parent, Merger Sub or any of their respective
Affiliates pursuant hereto or in connection herewith shall survive the Closing
and any investigation at any time made by or on behalf of the Company and shall
terminate on the first anniversary of the Closing Date (except that Company
claims pending on the first anniversary of the Closing Date shall continued
until resolved). The covenants made by the Parent in this Agreement or any
certificate or other writing delivered by the Parent, Merger Sub and their
respective Affiliates pursuant hereto or in connection herewith shall survive
the Closing and any investigation at any time made by or on behalf of the
Company.
ARTICLE 9
OTHER PROVISIONS
9.1 Termination Events. This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Parent and the
Company;
(b) by Parent if there has been a breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of the Company and such breach has not been cured
within ten business days after written notice to the Company (provided,
that neither Parent nor Merger Sub is in material breach of the terms
of this Agreement, and provided further, that no cure period shall be
required for a breach which by its nature cannot be cured) such that
the conditions set forth in Section 7.2.1 or Section 7.2.2 hereof, as
the case may be, will not be satisfied;
(c) by Parent, if the Company or its Board of
Directors shall have (i) withdrawn, modified or amended in any material
respect its approval of this Agreement or the transactions contemplated
herein, or (ii) taken any public position inconsistent with its
approval or recommendation, including, without limitation, having
failed (without the consent of Parent) after a reasonable period of
time to reject or disapprove any Acquisition Proposal (or after a
reasonable period of time to recommend to its shareholders such
rejection or disapproval), and in that event the Company shall pay to
Parent, to
A-25
<PAGE>
compensate it for its expenses incurred and effort expended in
preparing for the combination, a fee of one million dollars
($1,000,000);
(d) by the Company if there has been a breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent or Merger Sub and such breach has not
been cured within ten business days after written notice to Parent
(provided, that the Company is not in material breach of the terms of
this Agreement, and provided further, that no cure period shall be
required for a breach which by its nature cannot be cured) such that
the conditions set forth in Section 7.3.1 or Section 7.3.2 hereof, as
the case may be, will not be satisfied;
(e) by the Company, if the Company accepts an
Acquisition Proposal pursuant to a good-faith determination by its
Board of Directors, after taking advice of counsel, that not to accept
the Acquisition Proposal would constitute a breach of the Directors'
fiduciary duty under Virginia corporation law, provided, however, that
in that event the Company shall pay to Parent, to compensate it for its
expenses incurred and effort expended in preparing for the combination,
a fee of one million dollars ($1,000,000);
(f) by any party hereto if: (i) there shall be a
final, non-appealable order of a federal or state court in effect
preventing consummation of the Merger; (ii) there shall be any final
action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make consummation of the Merger illegal
or which would prohibit Parent's ownership or operation of all or a
material portion of the business or assets of the Company, or compel
Parent to dispose of or hold separate all or a material portion of the
business or assets of the Company or Parent as a result of the Merger;
(iii) if the Company's stockholders do not approve this Agreement and
the transactions contemplated hereby at the Company Meeting; or
(g) by any party hereto if the Merger shall not have
been consummated by October 31, 1998, provided that the right to
terminate this Agreement under this Section 9.1(g) shall not be
available to any party whose failure to fulfill any material obligation
under this Agreement has been the cause of, or resulted in, the failure
of the Effective Time to occur on or before such date.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered by hand sent via a reputable
nationwide courier service or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice) and shall be deemed
given on the date on which so hand-delivered or on the third business day
following the date on which so mailed or sent:
To Parent and Merger Sub:
CACI International Inc
1100 North Glebe Road
Arlington, VA 22201
Attention: Dr. J. P. London, Chairman
with copies to:
Jeffrey P. Elefante
Executive Vice President, General Counsel and Secretary
CACI International Inc
1100 North Glebe Road
Arlington, VA 22201
A-26
<PAGE>
David W. Walker, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
To the Company:
QuesTech, Inc.
7600-A Leesburg Pike,
Falls Church, Virginia 22043
Attention: Vincent L. Salvatori, Chairman
with copies to:
Michael P. Rivera, Esq.
Vice President, General Counsel, and Secretary
QuesTech, Inc.
7600-A Leesburg Pike,
Falls Church, Virginia 22043
9.3 Entire Agreement. This Agreement and the documents and
instruments and other agreements among the parties hereto as contemplated by
or referred to herein constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all other prior agreements
and understandings, both written and oral, between the parties with respect
to the subject matter hereof, including the Letter of Intent. Each party
hereto acknowledges that, in entering this Agreement and completing the
transactions contemplated hereby, such party is not relying on any
representation, warranty, covenant or agreement not expressly stated in this
Agreement or in the agreements among the parties contemplated by or referred
to herein.
9.4 Assignability. This Agreement is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder, except as
otherwise expressly provided herein. Neither this Agreement nor any of the
rights and obligations of the parties hereunder shall be assigned or delegated,
whether by operation of law or otherwise, without the written consent of all
parties hereto, except that certain rights and obligations of Merger Sub and the
Company may be assigned and delegated to the Surviving Corporation as a result
of the Merger without any further consent hereunder.
9.5 Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
9.6 Specific Performance. The parties hereto acknowledge that damages
alone may not adequately compensate a party for violation by another party of
this Agreement. Accordingly, in addition to all other remedies that may be
available hereunder or under applicable law, any party shall have the right to
any equitable relief that may be appropriate to remedy a breach or threatened
breach by any other party hereunder, including the right to enforce specifically
the terms of this Agreement by obtaining injunctive relief in respect of any
violation or non-performance hereof.
9.7 Governing Law. This Agreement shall take effect and shall be
construed as a contract under the laws of the Commonwealth of Virginia.
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same agreement.
A-27
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement and Plan of Merger under seal as of the date first above written.
CACI International Inc
By
-----------------------------------
Its
-----------------------------------
CACI Acquisition Corporation
By
-----------------------------------
Its
-----------------------------------
QuesTech, Inc.
By
-----------------------------------
Its
-----------------------------------
A-28
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
2.1 Form of Certificate of Merger
6.7 Form of Affiliate Agreement
7.2.3 Form of Opinion from the Company's Counsel
7.3.3 Form of Opinion from Parent's Counsel
</TABLE>
<PAGE>
AMENDMENT NO. 1 TO THE AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to the Agreement and Plan of Merger dated July 30, 1998 by
and among CACI International Inc. (Parent), CACI Acquisition Corporation (Merger
Sub), and QuesTech, Inc. (the Company) (the Merger Agreement) is effective as of
October 6, 1998.
WITNESSETH
WHEREAS, the parties have been engaged in a range of actions aimed at satisfying
all of the conditions precedent to making the proposed merger of Parent, Merger
Sub, and the Company effective (the Merger); WHEREAS, practical considerations
attendant to such actions have caused the parties to spend more time than
originally anticipated in satisfying all of the conditions precedent to closing
the Merger; WHEREAS, the parties remain committed to completing all transactions
contemplated by the Merger Agreement; and WHEREAS, based on the current status
of all activities related to the Merger Agreement the parties anticipate that
they will be able to effect a closing of the Merger by November 15, 1998; NOW,
THEREFORE, Parent, Merger Sub and the Company hereby agree as follows:
1. Article 9, Subsection 9.1(g) of the Merger Agreement is, and hereby shall
be, amended by deleting the date "October 31, 1998" in the second line of
the Subsection and replacing it with the date "November 15, 1998;"
2. All of the other terms and conditions of the Merger Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF , the parties have duly executed this Amendment No. 1 to the
Agreement and Plan of Merger.
CACI International Inc.
By: /S/ Jeffrey P. Elefante Date: 10/5/98
---------------------------------------- ---------------------
CACI Acquisition Corporation
By: /S/ Jeffrey P. Elefante Date: 10/5/98
---------------------------------------- ---------------------
QuesTech, Inc.
By: /S/ M. P. Rivera Date: 10/6/98
---------------------------------------- ---------------------
<PAGE>
APPENDIX B
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
OPINION OF LEGG MASON WOOD WALKER, INCORPORATED
July 30, 1998
Board of Directors
QuesTech, Inc.
7600-A Leesburg Pike
Falls Church, Virginia 22043
Members of the Board:
We understand that QuesTech, Inc. ("QuesTech" or the "Company") and
CACI International Inc. ("CACI") propose to enter into an Agreement and Plan of
Merger (the "Agreement") pursuant to which CACI will offer to purchase (the
"Merger Transaction") all of the outstanding shares of QuesTech common stock for
$18.375 in cash per share (the "Merger Consideration") subject to certain
adjustments in accordance with the Agreement. The terms and conditions of the
Merger Transaction are set forth in more detail in the Agreement and Plan of
Merger dated as of July 30, 1998 between CACI and QuesTech.
You have requested our opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Merger Consideration to
QuesTech's shareholders. This opinion is directed only to the consideration to
be received by QuesTech's shareholders pursuant to the Merger Transaction.
In connection with this opinion, we reviewed, among other things: (a)
the Merger Agreement; (b) the Annual Reports to Shareholders and the Annual
Reports on Form 10-K of QuesTech for the five fiscal years ended December 31,
1997; (c) certain interim reports to shareholders and Quarterly Reports on Form
10-Q of QuesTech; and (d) certain other communications from QuesTech to their
respective shareholders. We also had discussions with members of the senior
management of QuesTech regarding the past and current business operations,
financial condition and future prospects of their company. In addition, we
reviewed the reported price and trading activity for the shares of QuesTech
common stock, compared certain financial and stock market information for
QuesTech with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the federal information technology services industry
specifically, and in other industries generally, and performed such other
studies and analyses as we considered appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for the independent verification of such
information and have further relied upon the assurances of the management of
CACI and the Company that they are not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial projections
for the Company, upon advice of the Company we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and that the Company will
perform substantially in accordance with such projections. In arriving at our
opinion, we have not conducted a physical inspection of the properties or
facilities of the Company and have not made or obtained any evaluations or
appraisals of the assets or liabilities the Company. Upon the advice of the
Company and its legal and accounting advisors, we have assumed that the Merger
Transaction will not qualify for pooling-of-interests accounting treatment. Our
opinion necessarily is based upon market, economic and other conditions as they
exist on, and can be evaluated as of, the date of this letter.
We have acted as financial advisor to the Company in connection with
the Merger Transaction and will receive a fee for our services, including the
delivery of this Opinion. In addition, the Company has agreed to
<PAGE>
indemnify us for certain liabilities that may arise out of the rendering of this
opinion. We have in the past and may in the future provide investment banking
and other related services to the Company, for which we expect to receive
customary fees or compensation. In the ordinary course of our business, we may
actively trade in the equity securities of the Company and CACI for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is directed to the Board of Directors
of QuesTech. This letter is not to be quoted or referred to, in whole or in
part, in any registration statement, prospectus, or in any other document used
in connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without the prior written consent of Legg Mason
Wood Walker, Incorporated; provided that this opinion may be included in its
entirety in any proxy statement or in any disclosure statement of QuesTech or
any filing made by QuesTech with the Securities and Exchange Commission with
respect to the QuesTech Merger Transaction.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Merger Consideration is fair, from a financial point of
view, to QuesTech shareholders.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
Douglas M. Schmidt
Managing Director
<PAGE>
APPENDIX C
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Edward G. Broenniman
-------------------------
Name: Edward G. Broenniman
Shares: 7,500
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Gerald F. Mayefskie
-------------------------
Name: Gerald F. Mayefskie
Shares: 44,176
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Sebastian P. Musco
---------------------------------
Name: Sebastian P. Musco
Shares: 155,480
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Vincent M. Russo
-------------------------------
Name: Vincent M. Russo
Shares: 5,700
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Vincent L. Salvatori
-------------------------
Name: Vincent L. Salvatori
Shares: 97,888
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ William M. Fairl
-------------------------
Name: William M. Fairl
Shares: 27,500
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Joe W. Rigby
-------------------------
Name: Joe W. Rigby
Shares: 20,000
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Timothy G. Siegel
-------------------------
Name: Timothy G. Siegel
Shares: 11,000
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Joseph P. O'Connell
-------------------------
Name: Joseph P. O'Connell
Shares: 20,252
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Michael P. Rivera
-------------------------
Name: Michael P. Rivera
Shares: 6,000
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Michael Stankosky
-------------------------
Name: Michael Stankosky
Shares: 10,000
<PAGE>
QuesTech Affiliate's Agreement
Dated: July 1, 1998
The undersigned officer or Director of Questech, Inc., a Virginia
corporation (the "Company"), makes this Agreement in order to induce CACI
International Inc and its subsidiary CACI Acquisition Corp., both Delaware
corporations, to enter into the Agreement and Plan of Merger dated the date
hereof with the Company (the "Agreement") and to perform the transactions
contemplated thereby.
The undersigned is the owner and holder of the amount of shares of the
Company's common stock, par value $0.05 per share, set forth below (the
"Shares"), with full power to dispose of any and all of the Shares and to vote
the Shares on any matter presented for a vote of the Company's shareholders,
including without limitation approval of the merger and the related transactions
contemplated by the Agreement.
The undersigned hereby agrees (a) to vote all of the Shares and (b) to
instruct the trustees of the QuesTech Stock Employee Compensation Trust to vote
all shares of the Company's Common Stock with respect to which the undersigned
has the power to direct voting, to approve the Agreement and to authorize the
merger contemplated thereby and all actions to be taken by the Company in
performance of the Agreement, at any meeting of the Company's shareholders or by
execution of any written consent of shareholders calling for or reflecting a
vote of shareholders with respect to the Agreement or any such related action.
In furtherance of the agreement stated herein, the undersigned hereby
appoints and constitutes J. P. London, James P. Allen, and Jeffrey P. Elefante
proxies and attorneys-in-fact for the undersigned, with full power of
substitution in the premises, with authority to vote the Shares consistently
with the agreement stated herein at any meeting and by execution of any written
consent of shareholders during any period when the Agreement is in effect. The
proxy given hereby may be executed by any or all of the named proxies acting
singly or together. The proxy given hereby is coupled with an interest in the
Shares and shall be irrevocable so long as the Agreement is in effect.
In Witness Whereof the undersigned has executed this Agreement under seal
as of the date written above.
Signed: /s/ Douglas S. Wood
-------------------------
Name: Douglas S. Wood
<PAGE>
APPENDIX D
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
QuesTech, Inc. and Subsidiaries
RESTATED CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1997, 1996 and 1995
D-1
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
--------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS D-3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996 D-4
CONSOLIDATED STATEMENTS OF EARNINGS - YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995 D-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 D-8
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS
ENDED DECEMBER 31, 1997, 1996 AND 1995 D-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS D-12-D-41
SUPPLEMENTAL INFORMATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS D-43
</TABLE>
D-2
<PAGE>
[LETTERHEAD]
Report of Independent Certified Public Accountants
Stockholders
QuesTech, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheets of QuesTech, Inc.
(a Virginia corporation), and Subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of QuesTech, Inc., and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
We have also audited Schedule II as of December 31, 1997, and for each of the
three years in the period then ended. In our opinion, this schedule presents
fairly the information required to be set forth therein.
/s/ Grant Thornton LLP
----------------------
Vienna, Virginia
February 6, 1998 (except for Notes J and K,
as to which the date is August 31, 1998)
Suite 375
2070 Chain Bridge Road
Vienna, VA 22182-2536
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996
Restated Restated
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................. $ 97,700 $ 43,500
Accounts receivable
Trade ................................... 11,734,800 9,027,600
Income taxes and other .................. 867,200 594,500
Prepaid expenses and other ................ 162,300 347,200
Deferred income taxes ..................... 239,500 900,300
----------- -----------
Total current assets ................. 13,101,500 10,913,100
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - at
cost less accumulated depreciation and
amortization .............................. 3,100,700 2,665,700
GOODWILL, less accumulated amortization of
$1,726,200 and $1,571,600, respectively .. 1,210,400 1,365,000
DEFERRED INCOME TAXES, net of valuation
allowance of $262,000 ..................... 1,369,900 1,315,600
OTHER ASSETS ................................ 2,350,300 1,864,900
NET ASSETS OF DISCONTINUED OPERATIONS ....... 2,682,600 2,376,900
----------- -----------
TOTAL ASSETS ................................ $23,815,400 $20,501,200
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
D-4
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
Restated Restated
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Line of credit ............................ $ 3,919,800 $ 1,227,400
Current maturities of long-term
obligations .............................. 511,900 374,000
Accounts payable ........................... 2,180,900 1,937,900
Accrued liabilities and deferred
credits .................................. 4,956,900 5,512,800
----------- -----------
Total current liabilities ............ 11,569,500 9,052,100
LONG-TERM OBLIGATIONS, net of current
maturities ................................. 1,527,800 1,721,800
INDEBTEDNESS TO RELATED PARTIES .............. 1,542,900 1,417,100
ACCRUED POSTRETIREMENT BENEFIT COST .......... 1,577,000 1,267,300
OTHER LONG TERM OBLIGATIONS .................. 894,300 1,010,500
----------- -----------
Total liabilities .................... 17,111,500 14,468,800
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - authorized 3,000,000 shares
of $.05 par value, issued 1,657,304
and 1,649,904 shares, outstanding 1,618,557
and 1,610,857 at December 31, 1997 and
1996, respectively ........................ 82,800 82,500
Additional paid in capital ................. 2,878,300 2,835,600
Retained earnings .......................... 4,297,900 3,652,000
Less: Treasury Stock at cost .............. (210,500) (193,100)
Due from SECT .............................. (344,600) (344,600)
----------- -----------
Total stockholders' equity ........... 6,703,900 6,032,400
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ... $23,815,400 $20,501,200
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
D-5
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
Restated Restated Restated
-------- -------- --------
<S> <C> <C> <C>
Revenues .......................... $77,859,500 $71,692,900 $57,902,700
Operating expenses
Salaries, wages and employee
benefits ...................... 41,047,400 33,831,400 27,777,000
Other operating expenses ........ 33,629,600 34,065,400 26,446,100
----------- ----------- -----------
Total operating expenses .......... 74,677,000 67,896,800 54,223,100
----------- ----------- -----------
Earnings from continuing operations 3,182,500 3,796,100 3,679,600
Other expense
Interest expense ................ 565,100 535,700 331,200
Charges arising from settlements
of litigation ................. -- -- 722,100
Earnings from continuing oper-
ations before income taxes .... 2,617,400 3,260,400 2,626,300
Provision for income taxes ........ 1,008,100 1,090,700 1,125,900
----------- ----------- -----------
Net earnings from continuing
operations ..................... $ 1,609,300 $ 2,169,700 $ 1,500,400
----------- ----------- -----------
Discontinued operations:
Loss from discontinued oper-
ations, net of tax effect of
$(603,400), $(904,400),
$(735,600) ................... $ (963,400) $(1,351,400) $ (980,300)
Loss from disposal, net of
tax effect ................... -- -- --
----------- ----------- ----------
Net loss from discontinued
operations ................... (963,400) (1,351,400) (980,300)
----------- ----------- -----------
Net earnings ...................... $ 645,900 $ 818,300 $ 520,100
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common
shares outstanding:
Basic ......................... 1,439,193 1,395,397 1,349,331
--------- --------- ---------
--------- --------- ---------
Diluted ....................... 1,521,755 1,517,521 1,540,318
--------- --------- ---------
--------- --------- ---------
</TABLE>
D-6
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
Restated Restated Restated
-------- -------- --------
<S> <C> <C> <C>
Earnings per share, continuing
operations:
Basic .......................... $ 1.12 $ 1.55 $ 1.11
----------- ----------- -----------
----------- ----------- -----------
Diluted ........................ $ 1.06 $ 1.43 $ 0.97
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss) per share,
discontinued operations:
Basic .......................... $ (0.67) $ (0.96) $ (0.72)
----------- ----------- -----------
----------- ----------- -----------
Diluted ........................ $ (0.64) $ (0.89) $ (0.63)
----------- ----------- -----------
----------- ----------- -----------
Earnings per share:
Basic .......................... $ 0.45 $ 0.59 $ 0.39
----------- ----------- -----------
----------- ----------- -----------
Diluted ........................ $ 0.42 $ 0.54 $ 0.34
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
D-7
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Common Stock:
Beginning balance ................... $ 82,500 $ 78,900 $ 78,900
Exercise of options ................. 300 3,600 --
---------- ---------- ----------
Ending balance ...................... 82,800 82,500 78,900
---------- ---------- ----------
---------- ---------- ----------
Additional paid in capital:
Beginning balance ................. 2,835,600 2,720,100 2,722,700
Exercise of options ............... 42,700 85,500 (2,600)
Tax benefit associated with
exercise of options ............. -- 30,000 --
---------- ---------- ----------
Ending balance .................... 2,878,300 2,835,600 2,720,100
---------- ---------- ----------
---------- ---------- ----------
Retained Earnings:
Beginning balance ................... 3,652,000 2,833,700 2,313,600
Net Earnings ........................ 645,900 818,300 520,100
---------- ---------- ----------
Ending balance ...................... 4,297,900 3,652,000 2,833,700
---------- ---------- ----------
---------- ---------- ----------
Treasury Shares:
Beginning balance ................... (193,100) (227,300) (30,000)
Purchase of shares .................. (17,400) -- (197,300)
Exercise of options ................. -- 34,200 --
---------- ---------- ----------
Ending balance ...................... (210,500) (193,100) (227,300)
---------- ---------- ----------
---------- ---------- ----------
Due from SECT:
Beginning balance ................... (344,600) (357,600) (432,500)
Exercise of options ................. -- 13,000 74,900
---------- ---------- ----------
Ending balance ...................... (344,600) (344,600) (357,600)
---------- ---------- ----------
---------- ---------- ----------
Total Stockholders' Equity ............ $6,703,900 $6,032,400 $5,047,800
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
D-8
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Shares of Common stock authorized .... 3,000,000 3,000,000 3,000,000
--------- --------- ---------
--------- --------- ---------
Shares of Common stock issued:
Beginning balance ................... 1,649,904 1,578,000 1,578,000
Exercise of options ................. 7,400 71,904 --
--------- --------- ---------
Ending balance ...................... 1,657,304 1,649,904 1,578,000
--------- --------- ---------
--------- --------- ---------
Shares of Treasury stock:
Beginning balance ................... 39,047 41,539 10,000
Acquisition (Reissue) of Treasury
stock ............................. (300) (2,492) 31,539
---------- ---------- ----------
Ending balance ...................... 38,747 39,047 41,539
--------- --------- ---------
--------- --------- ---------
Shares held by the SECT:
Beginning balance ................... 176,131 183,392 221,792
Release of Shares ................... -- (7,261) (38,400)
---------- ---------- ----------
Ending balance ...................... 176,131 176,131 183,392
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
D-9
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
Restated Restated Restated
-------- -------- --------
<S> <C> <C> <C>
Increase (Decrease) in Cash and
Cash Equivalents
Cash flows from operating activities:
Net earnings ......................... $ 1,609,300 $ 2,169,700 $1,500,400
Loss from discontinued operations (963,400) (1,351,400) (980,300)
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and Amortization ...... 994,100 755,900 619,900
Increase in unrecovered contract
costs and doubtful accounts ...... -- 337,500 185,000
Increase in value of Deferred
Compensation Plan assets ......... (244,600) (234,900) (197,200)
Changes in assets and liabilities of
continuing operations:
Accounts receivable .............. (2,979,900) (1,317,200) 743,100
Inventories ...................... -- -- --
Prepaid expenses ................. (58,300) 63,000 138,500
Accounts payable ................. (229,600) 670,500 (383,600)
Income taxes payable ............. -- (45,200) (74,700)
Deferred taxes payable ........... 606,500 (246,500) (195,700)
Indebtedness to related
parties and other long-term
obligations .................... 181,000 114,300 559,100
Accrued postretirement
benefits ....................... 309,700 106,300 184,200
Changes in assets and liabilities of
discontinued operations .............. (76,200) (66,700) 186,500
---------- ---------- ----------
Net cash provided by (used in)
operating activities ........... (851,400) 955,300 2,285,200
---------- ---------- ----------
</TABLE>
D-10
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
Restated Restated Restated
-------- -------- --------
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures from
continuing operations ......... $(1,272,000) $(2,005,000) (1,301,100)
Capital expenditures from
discontinued operations ....... (229,600) (1,810,500) (718,800)
----------- ----------- ---------
Net cash (used in)
investing activities ....... (1,501,600) (3,815,500) (2,019,900)
Cash flows from financing activities:
Borrowings on line of credit .... 2,692,400 833,300 139,900
Cash proceeds from exercise of
stock options ................. 25,600 166,300 51,700
Proceeds from lease financing ... -- 2,041,900 --
Repayment of long-term debt ..... (194,000) (122,100) (51,100)
Repayment of indebtedness to
related parties ............... (600) (58,600) (242,300)
Repayment of other long-term debt (116,200) (114,900) (70,400)
Purchase of Treasury Stock ...... -- -- (176,700)
Long term borrowings of
discontinued operations ....... -- (9,700) --
----------- ----------- ---------
Net cash provided by (used in)
financing activities ....... 2,407,200 2,736,200 (348,900)
Net increase (decrease) in cash .... 54,200 (124,000) (83,600)
Cash, beginning of period .......... 43,500 167,500 251,100
----------- ----------- ----------
Cash, end of period ................ $ 97,700 $ 43,500 $ 167,500
----------- ----------- ----------
----------- ----------- ----------
Cash payments for:
Interest ......................... $ 540,600 $ 355,900 $ 147,300
Income taxes ..................... $ 250,300 $ 916,400 $ 671,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-11
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES
1. Nature of Operations
The Company performs a broad range of high technology services for industry and
agencies of the United States Department of Defense ("DOD") and the national
security community. These services are provided through two business units,
QuesTech Research Division ("QTRD") and QuesTech Service Company ("QTSC").
Revenues from government contracts account for 99% of the Company's revenues. A
third subsidiary, QuesTech Packaging, Inc. ("QTPI") was in the business of
manufacturing plastic containers until operations were ceased on August 31, 1998
(see Note J).
2. Use of Estimates in the Preparation of Financial Statements
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.
3. Principles of Consolidation
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany transactions have been
eliminated in consolidation.
4. Income Recognition
The Company provides services, primarily for the United States Government, under
three types of contracts: cost-reimbursement, fixed price and
time-and-materials. Substantially all of the Company's revenue is derived from
these contracts. Approximately 40% of the Company's consolidated revenues during
each of the last three years was generated by a major contract with the
Department of the Army. Income is recognized for cost-reimbursement and
fixed-price type contracts using the percentage-of-completion method based on
costs incurred; for time-and-materials contracts, income is based on
contractually defined billing rates applied to services performed and
D-12
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
materials delivered. Anticipated losses on contracts are recognized as soon as
they become known.
Certain of the Company's contracts include provisions permitting the government
to withhold a defined amount or percentage of a contract price until certain
conditions have been satisfactorily met. These conditions primarily relate to
uncompleted indirect cost rate negotiations and substantial completion of
contract performance. The inclusion of these amounts in income is consistent
with the revenue recognition policy stated above. The inclusion of the
retainages and costs subject to audit in income is consistent with common
industry practice.
A portion of the Company's revenues related to performance on certain
cost-reimbursement type contracts is subject to audit by the United States
Defense Contract Audit Agency (DCAA). Such contract audits have been completed
through December 31, 1995 for QTRD and December 31, 1991 for QTSC. DCAA audits
of contract costs for the government contract segment of QTSC for fiscal years
1992 through 1995 are expected to be completed during 1998. Contract revenue has
been recorded in amounts that are expected to be realized upon final settlement.
The Company provides reserves for potentially unrecoverable contract costs and
uncollectible accounts receivable based upon a periodic review by management of
the status of DCAA incurred cost audits and the collectibility of accounts
receivable. Increases or decreases in such reserves are recorded in "Other
Operating Expenses" in the accompanying financial statements.
5. Operating Expenses
Operating expenses presented in the accompanying statements of operations
reflect the allocation of overhead and general and administrative expenses.
6. Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
D-13
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
7. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
o Cash and cash equivalents, accounts receivable, accounts payable, line
of credit, and other accrued liabilities - The carrying amounts
approximate fair value because of the short maturity of these
instruments. The Company's receivables arise primarily in connection
with its performance on government contracts and therefore have
negligible credit risk.
o Cash Values of Insurance Policies - The fair value is based on the cash
values accumulated in these policies, net of borrowings. Surrender
charges are not reflected in the fair value amount unless cash
withdrawals or loans are made against these policies.
o Letter of credit - The fair value is based on the estimated cost to
terminate or otherwise settle these obligations with the
counter-parties.
Following is a summary of the estimated fair value at December 31, 1997, of the
Company's financial instruments other than those on which the carrying amount
approximates fair value.
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- -----
<S> <C> <C>
Cash values of Insurance policies $1,697,800 $1,697,800
Letter of credit -- $ 250,000
</TABLE>
D-14
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
The letter of credit, which was outstanding at December 31, 1997 was released on
February 5, 1998.
8. Property, Plant and Equipment and Related Depreciation
Property, plant and equipment are recorded at cost. Cost includes expenditures
for major improvements and replacements and the net amount of interest cost
associated with significant capital additions. Construction in progress costs
and specialized manufacturing equipment in service are stated at the lower of
cost or fair value, based on expected future cash flows from the capital
investment. During 1997 and 1996, interest cost associated with construction in
progress was expensed due to immaterial amounts. The cost of properties held
under capital leases is equal to the lower of the net present value of the
minimum lease payments or the fair value of the leased property at the inception
of the lease.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives (generally
five to ten years), using both the straight-line and declining-balance methods.
Amortization of computer software developed for internal use is over five years,
based on a double-declining balance method. Leasehold improvements are amortized
over the lives of the respective leases or the service lives of the
improvements, whichever is the shorter period. Amortization of capitalized
leased assets is included with depreciation expense.
In accordance with SFAS 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed of," long-lived assets and certain
intangibles, including goodwill, are reviewed for impairment whenever events or
changes in circumstances indicate that the related carrying amount may not be
recoverable. The Company has determined that no impairment loss need be
recognized for applicable assets of continuing operations.
D-15
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
9. Goodwill
The excess of the acquisition costs over the fair value of the net assets of the
businesses acquired is being amortized on a straight-line basis over periods
ranging from 19 to 20 years.
The Company regularly performs a reassessment of the continuing value of the
acquired goodwill associated with the acquisitions. To the extent that the
future cash flows based on the contracts' expected operating profits will exceed
the carrying cost of the asset, an impairment loss is not recognized. Contract
termination or non-renewal of the contract are events or changes in
circumstances that indicate that the carrying amount of the goodwill asset may
not be recoverable, thereby requiring the recognition of an impairment loss at
that time.
10. Accounting for Postretirement Benefits
The Company applies the provisions of SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and has elected to recognize the
transition obligation on a delayed recognition basis. The transition obligation
represents the unfunded portion of the accrued postretirement benefit obligation
(the "APBO") as of the transition date less any accrued postretirement benefit
cost. The accrued postretirement benefit cost as of the balance sheet date
reflects the net periodic cost attributed to the current year, net of benefit
payments, plus the accrued amount as of the beginning of the year. The cost
measurement principles and required disclosures of SFAS 106 are applied
separately to each identifiable postretirement benefit plan. The accrued
postretirement benefit cost obligation is reported as an aggregate amount in the
financial statements.
11. Accounting for Post-Employment Benefits
The Company periodically re-evaluates its projected obligations under
post-employment agreements when the subject officers receive compensation
increases during their years of active employment. The projected cost of
additional compensation payable during the post-employment years is discounted
at present value and charged to operations. Periodic increases
D-16
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
in the balances due each of the officers also reflect the accrued interest on
the discounted cost of the liability.
12. Accounting for Stock-based Compensation
As permitted by SFAS 123, "Accounting for Stock-based Compensation," the Company
uses the intrinsic value based method, as prescribed by Opinion 25, that
measures compensation cost only to the extent that the option price is lower
than the quoted market price of the stock at the date of the award. Pro forma
disclosures of net income, and earnings per share are presented in Note I as if
the fair value based method of accounting defined in SFAS 123 had been applied.
13. Earnings per share
In 1997 the Financial Accounting Standards Board issued Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share." This Statement replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Opinion 15. In complying with the requirements of SFAS No. 128, the Company has
restated all prior period EPS data.
For purposes of computing the diluted EPS, the Company has dilutive stock
options as share equivalents using the treasury stock method. At December 31,
1997 and 1996, the Company's Stock Employee Compensation Trust (SECT), held
176,131 shares. These SECT shares have been excluded from the base of the EPS
calculations since they have not been allocated to individuals.
D-17
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
The following table reconciles basic and diluted EPS:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Numerator
- - ---------
Net income $ 645,900 $ 818,300 $ 520,100
---------- ---------- ----------
---------- ---------- ----------
Denominator
- - -----------
Denominator for basic EPS-weighted
average shares 1,439,193 1,395,397 1,349,331
Effect of Dilutive Securities
Stock options(1) (1) 82,562 122,124 190,987
--------- --------- ---------
Denominator for diluted EPS 1,521,755 1,517,521 1,540,318
--------- --------- ---------
--------- --------- ---------
</TABLE>
(1) Options to purchase 42,000 shares of common stock at prices ranging
from $7.50-$7.70 per share were outstanding during the second half of
1997 but were not included in the computation of diluted EPS because
the options' exercise price was greater than the average market price
of the common shares.
15. New Accounting Standards
Reporting Comprehensive Income
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. This Statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a
D-18
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. The Statement requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Currently, the Company has no
other comprehensive income.
Disclosures about Segments of an Enterprise and Related Information
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information," effective for periods beginning after
December 15, 1997. This Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
This Statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. This Statement requires that a public
business enterprise reports a measure of segment profit or loss, certain
specific revenue and expense items, and
D-19
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
segment assets and certain other related information; information about the
revenues derived from the enterprise's products or services (or groups of
similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions.
However, this Statement does not require an enterprise to report information
that is not prepared for internal use if reporting it would be impracticable.
The Company will comply with the disclosure requirements of SFAS 131 in fiscal
year 1998.
NOTE B - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
---- ----
<S> <C> <C>
Accounts receivable
Current
U.S. Government
Billed $ 7,993,900 $ 9,400,500
Unbilled (including retentions
and indirect cost rate
variances of $1,392,300 and
$382,700 in 1997 and
$1,197,000 and $82,400
in 1996, respectively) 5,225,200 1,739,900
----------- -----------
13,219,100 11,140,400
Less reserve for unrecoverable
contract costs and doubtful
accounts (1,484,300) (2,112,800)
---------- ----------
$11,734,800 $ 9,027,600
----------- -----------
----------- -----------
</TABLE>
D-20
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE B - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS -
Continued
Of the December 31, 1997 billed and unbilled amounts, approximately $10 million
is expected to be collected in 1998 and the remainder in subsequent years.
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
---- ----
<S> <C> <C>
Equipment and leasehold improvements
Furniture and fixtures $ 2,858,600 $ 2,811,300
Machinery and equipment 3,975,900 3,550,800
Computer software 994,900 2,053,300
Equipment held under capital lease 586,600 312,600
Leasehold improvements 982,900 905,300
----------- -----------
9,398,900 9,633,300
Less accumulated depreciation and
amortization (6,298,200) (6,967,600)
---------- ----------
$ 3,100,700 $ 2,665,700
----------- -----------
----------- -----------
</TABLE>
Computer software consists primarily of costs associated with development of
software for internal use by the Company in its accounting and finance function
and its wide area network. Included in the amount capitalized is approximately
$575,000 in internal labor costs.
As of December 31, 1997, the aggregate net book value of leased office equipment
and certain leased assets included in construction in progress was $2.3 million.
D-21
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE B - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS -
Continued
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
---- ----
<S> <C> <C>
Other assets
Cash value of life insurance
policies $ 1,697,800 $ 1,453,200
Patents less accumulated
amortization of $99,200 and
$82,700, respectively 216,000 224,200
Investment in a limited partnership 87,600 87,600
Deposits 77,000 67,700
Other 271,900 32,200
----------- -----------
$ 2,350,300 $ 1,864,900
----------- -----------
----------- -----------
</TABLE>
Other assets include cash values of corporate-owned participating life insurance
policies which the Company purchased as a means of investing salary deferrals of
the employees covered under the Officers and Managers' Deferred Compensation
Plan.
The Company expects to hold the related life insurance policies through terms
varying between 10 to 20 years. Earlier surrender of these policies could cost
the Company approximately $382,200 pre-tax, as a result of surrender charges.
See also Note A8.
Accounts Payable
During 1997 and 1996, included in accounts payable are $1,913,400 and
$1,879,900, resulting principally from the Company's use of zero balance bank
accounts where funds are transferred to these accounts from the Company's line
of credit when disbursements are presented for payment.
D-22
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE B - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS -
Continued
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
---- ----
<S> <C> <C>
Accrued liabilities and
deferred credits
Accrued compensation and withholdings $ 1,821,200 $ 1,924,900
Accrued vacation 1,404,200 1,334,400
Amounts owed to certain subcontractors
and suppliers 1,093,400 1,324,300
Accrued legal expenses and commitments -- 505,600
Amounts due to related parties 428,700 373,500
Other 209,400 50,100
----------- -----------
Total accrued liabilities and
deferred credits $ 4,956,900 $ 5,512,800
----------- -----------
----------- -----------
</TABLE>
NOTE C - LINE OF CREDIT
At December 31, 1997, the Company's remaining available line of credit (LOC)
through First Union Bank (formerly Signet Bank of Virginia) was $2.1 million.
The underlying credit agreement permits borrowings up to $6.0 million. The
Company has the option of paying interest on the principal amount of the prime
rate or at LIBOR (London Interbank Offered Rate) plus 2.70%. The Company's
borrowing rate at December 31, 1997 was 8.5% which was the prime rate. All
borrowings are secured by a first lien security interest in all receivable
accounts, contract rights, chattel paper, instruments, general intangibles,
equipment, inventory, and documents now owned and hereafter acquired by the
Company. The Company was in compliance with various financial covenants, which
require the maintenance of a maximum debt-to-net worth ratio of 5 to 1 and a
minimum tangible net worth of $3.0 million.
In addition to its revolving credit agreement, the Company has at its disposal a
$750,000 term loan facility which expires on March 31, 1998. As of December 31,
1997, the Company had not borrowed any amounts on this
D-23
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE C - LINE OF CREDIT - Continued
facility. The proceeds of the term loan are intended for the purchase of houses
of employees relocated by the Company. The entire principal amount of each term
loan shall be due on the first to occur of (i) the sale of the house securing
such term loan and the (ii) maturity date.
As part of the borrowing arrangements, the Company is required to pay a
commitment fee of 3/8 of one percent of the average daily amount of the unused
portion of the credit facility.
The agreement provides for the issuance of letters of credit by the bank on the
Company's behalf.
The current agreement expires on May 31, 1998. Management expects the commitment
to be extended by an amendment at that time.
NOTE D - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Notes payable
Non-interest bearing note payable,
due based on the Company's proportionate
share of cash available for distribution
as defined in a related partnership
agreement, due upon demand $ 10,600 $ 10,600
Capitalized lease obligations
Amounts due under capitalized lease
obligations, payable in monthly
installments through 2001,
collateralized by certain equipment 2,029,100 2,085,200
---------- ----------
2,039,700 2,095,800
Less current maturities (511,900) (374,000)
---------- ----------
Total long-term obligations $1,527,800 $1,721,800
---------- ----------
---------- ----------
</TABLE>
D-24
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE D - LONG-TERM OBLIGATIONS - Continued
The following is a schedule of future minimum lease payments under capitalized
lease obligations together with the present value of the net minimum lease
payments:
<TABLE>
<CAPTION>
Year ending December 31,
- - -----------------------------
<S> <C> <C>
1998 $ 670,400
1999 613,600
2000 603,300
2001 484,800
2002 29,900
----------
Total minimum lease payments $2,402,000
Less amount representing interest
and taxes (372,900)
----------
Present value of minimum lease payments $2,029,100
----------
----------
Current portion $ 511,900
Noncurrent portion 1,517,200
----------
Capitalized lease obligations $2,029,100
----------
----------
</TABLE>
During 1996, the Company refinanced certain construction in progress in its
Newport News manufacturing plant under a sale/leaseback arrangement. The
machines were sold for a sum amount in excess of $2 million. The transaction was
accounted for as lease financing, wherein the property remains on the books
subject to depreciation. A financing obligation representing the proceeds was
recorded and is reduced based on payments under the lease.
D-25
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE E - INCOME TAXES
A reconciliation of the effective tax rate and the Federal statutory income tax
rate applied to pretax income follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate.... 34.0% 34.0% 34.0%
State income taxes, net of Federal
income tax benefit ................ .4 1.0 4.0
Amortization of goodwill ............ 5.0 5.2 5.8
Other ............................... (.9) (1.4) (0.9)
Investment in a foreign subsidiary .. -- (5.4) --
---- ---- ----
Effective income tax rate .... 38.5% 33.4% 42.9%
---- ---- ----
---- ---- ----
</TABLE>
Income tax expense consists of the following for the year ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current ............... $ 401,600 $1,337,200 $1,321,600
Deferred .............. 606,500 (246,500) (195,700)
---------- ---------- ----------
Income tax expense .. $1,008,100 $1,090,700 $1,125,900
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
D-26
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE E - INCOME TAXES - Continued
The tax effect of significant temporary differences that gave rise to deferred
income taxes as of December 31, 1997:
<TABLE>
<CAPTION>
Deferred Tax Deferred Tax
Asset Liability
------------ ------------
<S> <C> <C>
Depreciation and Amortization ..... $ $ 37,600
Retentions 537,200
Reserves against accounts
receivables ..................... 243,600
Deferred post-employment benefit .. 974,300
Deferred postretirement benefits .. 694,400
Accrued vacation .................. 409,200
Miscellaneous ..................... 124,700
------------ ------------
Subtotal ........................ 2,446,200 574,800
Valuation allowance ............... (262,000) --
------------ ------------
Deferred Tax .................... $2,184,200 $ 574,800
------------ ------------
------------ ------------
</TABLE>
Based on an analysis of future operating income for the purpose of realizing
deferred tax assets, management believes that its net deferred tax asset will be
recoverable in future returns and that its valuation allowance requires no
further adjustment.
The Company's federal income tax return for 1995 is currently being examined by
the Internal Revenue Service. Management does not believe that this or
subsequent audits will have a material effect on the Company's financial
statements.
NOTE F - EMPLOYEE BENEFIT PLANS
1. Profit-Sharing and Pension Plan
The Company has a profit-sharing plan pursuant to Section 401 of the Internal
Revenue Code, whereby participants may contribute up to 20% of their
compensation. Under the plan, the Company may make two types of
D-27
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
contributions subject to the discretion of the Board of Directors: (1) Employer
matching contributions and (2) Profit-Sharing contributions. In order to share
in either contribution, an employee must complete 1,000 hours of service during
the Plan Year when the contribution is made. Generally, contributions vest in
the employees' accounts based on their length of service.
During 1997, the employer contribution to the 401k plan was $221,500 compared to
$103,700 for 1996. No employer contribution was made by the Company during 1995.
2. Discretionary Bonus Plan
Under the Officers and Managers Discretionary Bonus Plan for QuesTech and
subordinate units ("the Bonus Plan"), officers and managers of the Company and
its subsidiaries are selected by management for participation in the Bonus Plan.
Bonuses are apportioned as a percentage of the recipient's salary and are based
upon the Company's overall performance and upon the performance of the business
unit to which the recipient is assigned, subject to review and approval by the
Chief Executive Officer and/or Chief Operating Officer and the Board of
Directors.
Amounts charged to expense under this plan were $98,000, $452,200 and $393,500
at December 31, 1997, 1996 and 1995, respectively.
3. Postretirement Benefits
The Company has three separate postretirement benefit plans which fall within
the purview of SFAS 106: the Group Health Plan, the Executive Life Insurance
Plan, and the Deferred Compensation Plan.
D-28
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
a. Group Health Plan
The Group Health Plan extends medical and dental benefit coverage to employees,
who upon retirement at the age of 65, have completed 20 years of full-time
employment with the Company, or retire with an individual employment agreement
which specifically grants coverage approved by the insurance carrier of the
subject group health policy. The Plan is contributory and contains cost-saving
features, such as deductibles and coinsurance. The accumulated postretirement
benefit obligation (APBO) represents the present value of insurance claims
expected to be presented by eligible employees during their retirement years,
based on the net premiums paid by the Company on behalf of active employees.
For measurement purposes, the annual health care cost trend for 1997 benefits
was 8%, grading down to 5% over four years. The 1% increase in health care cost
trend was 9% in 1997, grading down to 6% over four years. During 1995, a 10%
medical inflation rate was assumed, grading down to 5% over six years. The
measurement of the APBO for 1997 and 1996 was based on an assumed discount rate
of 7.5%.
b. Executive Life Insurance
The Company maintains life insurance policies, covering certain of its officers,
both former and active, through their lifetime, in accordance with their
respective employment agreements. The cost of the insurees' premiums is treated
as compensation expense.
c. Officers and Managers Deferred Compensation Plan (DEF COM)
DEF COM allows eligible employee participants to defer current compensation and
provides supplemental postretirement benefits along with certain specified death
benefits to the participants' beneficiaries. Postretirement benefits under DEF
COM are payable upon the participant's termination of employment (including
retirement), and are paid in equal installments over a period equal to the
length of time the employee deferred compensation, but no longer than ten years.
Termination or retirement benefits are based
D-29
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
upon the employee's actual deferrals plus interest credited annually, as set by
the Administrator. Supplemental death benefits are payable in some cases over a
period of ten years provided death occurs while the employee participant is
actively employed with the Company.
The Company invests the amounts deferred by employees in life insurance
policies. Since DEF COM is a defined contribution plan, the accumulated
postretirement benefit obligation as of the transition date has been based on
the actual balances in each participant's account, which consists of
contributions and accrued interest.
The following tables present the funded status of the Company's benefit plans
and the 1997 periodic expense:
<TABLE>
<CAPTION>
Group Executive Deferred
Health Life Comp.
Plan Insurance Plan 1997
------ --------- --------- ----
<S> <C> <C> <C> <C>
Accumulated Postretirement
Benefit Obligation:
Retirees ..............$ (283,100) $(295,400) $( 923,500) $(1,502,000)
Fully eligible active
plan participants .... (65,200) -- -- (65,200)
Other Active Plan
participants ......... (107,200) -- (1,970,900) (2,078,100)
---------- --------- ----------- -----------
Total ................ (455,500) (295,400) (2,894,400) (3,645,300)
Fair Value of Plan Assets .. -- -- -- --
---------- --------- ----------- ----------
APBO in excess of
plan assets: .......... (455,500) (295,400) (2,894,400) (3,645,300)
Unrecognized net gain/
(loss) ................. (199,100) (4,900) 259,900 55,900
Unrecognized Transition
Obligation ............ 441,000 198,500 1,122,500 1,762,000
---------- --------- ----------- -----------
Accrued postretirement
benefit cost in the
balance sheet ........$ (213,600) $(101,800) $(1,512,000) $(1,827,400)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
D-30
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
<TABLE>
<CAPTION>
Group Executive Deferred
Health Life Comp.
Plan Insurance Plan 1997
------ --------- --------- ----
<S> <C> <C> <C> <C>
Reconciliation of accrued
postretirement
benefit cost:
Accrued postretirement
benefit cost,
at January 1, 1997 .....$ (174,300) $ ( 85,500) $(1,251,900) $(1,511,700)
Net periodic cost ........ (60,000) ( 32,500) (473,600) (566,100)
Benefit payments ......... 20,700 16,200 213,500 250,400
---------- ---------- ----------- -----------
Accrued postretirement
benefit cost
at December 31, 1997 ...$ (213,600) $ (101,800) $(1,512,000) $(1,827,400)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Current portion .......... (20,700) ( 16,200) (213,500) (250,400)
Long-term portion ........ (192,900) ( 85,600) (1,298,500) (1,577,000)
---------- ---------- ----------- -----------
(213,600) (101,800) (1,512,000) (1,827,400)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
D-31
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
The following tables present the funded status of the Company's benefit plans
and the 1996 periodic expense:
<TABLE>
<CAPTION>
Group Executive Deferred
Health Life Comp.
Plan Insurance Plan 1996
------ --------- --------- ----
<S> <C> <C> <C> <C>
Accumulated Postretirement
Benefit Obligation:
Retirees ...............$ (314,400) $(298,800) $ (987,800) $(1,601,000)
Fully eligible active
plan participants ..... (13,200) -- -- (13,200)
Other Active Plan
participants .......... (139,700) -- (1,761,900) (1,901,600)
---------- --------- ----------- -----------
Total ................. (467,300) (298,800) (2,749,700) (3,515,800)
Fair Value of Plan Assets -- -- -- --
---------- --------- ----------- ----------
APBO in excess of
plan assets: ........... (467,300) (298,800) (2,749,700) (3,515,800)
Unrecognized net gain/
(loss) .................. (177,400) 1,500 300,000 124,100
Unrecognized Transition
Obligation ............. 470,400 211,800 1,197,800 1,880,000
---------- --------- ----------- -----------
Accrued postretirement
benefit cost in the
balance sheet .........$ (174,300) $ (85,500) $(1,251,900) $(1,511,700)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
D-32
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
<TABLE>
<CAPTION>
Group Executive Deferred
Health Life Comp.
Plan Insurance Plan 1996
------ --------- --------- ----
<S> <C> <C> <C> <C>
Reconciliation of accrued
postretirement
benefit cost:
Accrued postretirement
benefit cost,
at January 1, 1996 ......$ (126,300) $ (66,400) $(1,204,200) $(1,396,900)
Net periodic cost ......... (64,000) (35,200) (491,600) (590,800)
Benefit payments .......... 16,000 16,100 443,900 476,000
---------- --------- ----------- -----------
Accrued postretirement
benefit cost
at December 31, 1996 ....$ (174,300) $ (85,500) $(1,251,900) $(1,511,700)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
D-33
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
The following tables represent the net periodic postretirement benefit cost
components for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Group Executive Deferred
Health Life Comp.
Plan Insurance Plan 1997
------ --------- --------- ----
<S> <C> <C> <C> <C>
Service cost ..........$ 10,100 $ 1,300 $ 265,000 $ 276,400
Interest cost ......... 30,400 18,000 130,800 179,200
Amortization -
transition obliga. .. 29,400 13,200 75,300 117,900
Amortization - gain
or loss ............. (9,900) -- 2,500 (7,400)
---------- --------- --------- ---------
Net periodic post-
retirement
benefit cost ........$ 60,000 $ 32,500 $ 473,600 $ 566,100
---------- --------- --------- ---------
---------- --------- --------- ---------
Impact of One Percent
Increase in Medical
Trend Rate:
Aggregate impact on
1997 service cost
and interest cost ... $ 2,500
----------
----------
</TABLE>
D-34
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
<TABLE>
<CAPTION>
Group Executive Deferred
Health Life Comp.
Plan Insurance Plan 1996
------ --------- --------- ----
<S> <C> <C> <C> <C>
Service cost .......... $ 10,400 $ 4,300 $ 287,800 $ 302,500
Interest cost ......... 31,800 17,700 127,100 176,600
Amortization -
transition obliga. .. 29,400 13,200 75,300 117,900
Amortization - gain
or loss ............. (7,600) -- 1,400 (6,200)
---------- --------- ----------- -----------
Net periodic post-
retirement
benefit cost ........ $ 64,000 $ 35,200 $ 491,600 $ 590,800
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Impact of One Percent
Increase in Medical
Trend Rate:
Aggregate impact on
1996 service cost
and interest cost .. $ 2,100
----------
----------
</TABLE>
D-35
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS - Continued
<TABLE>
<CAPTION>
Group Executive Deferred
Health Life Comp.
Plan Insurance Plan 1995
------ --------- --------- ----
<S> <C> <C> <C> <C>
Service cost .......... $ 9,200 $ 4,000 $ 236,800 $ 250,000
Interest cost ......... 33,900 17,200 106,400 157,500
Amortization -
transition obliga. .. 29,400 13,200 75,300 117,900
Amortization - gain
or loss ............. (6,000) -- 2,100 (3,900)
---------- --------- ----------- -----------
Net periodic post-
retirement
benefit cost ........ $ 66,500 $ 34,400 $ 420,600 $ 521,500
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Impact of One Percent
Increase in Medical
Trend Rate:
Aggregate impact on
1995 service cost
and interest cost ... $ 3,300
----------
----------
</TABLE>
4. Stock Employee Compensation Trust
On February 1, 1994, the Company established a Stock Employee Compensation Trust
("SECT") and financed the SECT's repurchase of 221,792 shares of common stock
owned by two of the Company's former founders. The Company's loan to the SECT
will be paid down from time to time as the employees exercise and pay for their
options under the Company's Incentive Stock Option Plan. At December 31, 1997
and 1996, there were 176,131 unallocated and uncommitted shares held by the
SECT.
D-36
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE G - OTHER LONG-TERM OBLIGATIONS
Amounts due to certain founders (no longer affiliated with the Company), under a
Confidential Settlement Agreement, are included in Other Long-Term Obligations.
Payments under the agreements will continue until 2004. During 1995, the Company
entered into a similar agreement with another former founder. Amounts under the
latter agreement payable through 2006 are included in Other Long-Term
Obligations as well. The cost of the latter agreement was included in Other
Expense in the 1995 financial statements.
NOTE H - COMMITMENTS AND CONTINGENCIES
1. Future Minimum Rental Commitments
The following is a schedule by years of the approximate future minimum rental
payments required under operating leases that have initial or remaining
noncancelable lease terms of one year or more as of December 31, 1996:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1997 .......................... 1,809,100
1998 .......................... 1,723,200
1999 .......................... 1,034,400
2000 .......................... 884,800
2001 .......................... 607,200
----------
Future minimum rental payments ....... $6,058,700
----------
----------
</TABLE>
Net rent expense under operating leases amounted to approximately $2,053,400,
$1,744,000, and $1,739,900 for the years ended December 31, 1997, 1996 and 1995,
respectively, after being reduced by rental income which was not material during
the last three years.
D-37
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE H - COMMITMENTS AND CONTINGENCIES - Continued
2. Employment Agreements
The Company has employment agreements with two executive officers which
stipulate salary continuation for a period of five years and two years, as a
result of voluntary or involuntary termination, regardless of the change in
control of the Company. The cost of accrued interest and the present value of
compensation changes for these agreements aggregated ($115,353 and $106,700)
during 1997 and 1996, respectively. None of these costs will be paid until the
subject officers change their employment status with the Company.
NOTE I - STOCK OPTIONS
The Company accounts for its incentive stock options under APB No. 5. The
Company has two incentive stock option plans - 1994 and 1996. The 1994 and 1996
Stock Option Plans authorize the grant of up to 200,000 and 268,132 shares of
the Company's common stock, respectively. These options which have five-year
terms vest at a rate of 20% per year from the date of grant. The option price of
all options granted to date represents the fair market value of the Company's
common stock at the date of grant. Options to purchase 10,000 and 72,882 shares
are available for future grants under the 1994 and 1996 Plans, respectively.
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost for the plan been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS 123, the Company's
net income and earnings per share would have been:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net Income As reported ... $645,900 $818,300 $520,100
Pro forma ..... 527,100 705,600 419,000
Basic EPS As reported ... 0.45 0.59 0.39
Pro forma ..... 0.37 0.48 0.28
Diluted EPS As reported ... 0.42 0.54 0.34
Pro forma ..... 0.36 0.48 0.28
</TABLE>
D-38
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE I - STOCK OPTIONS - Continued
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: expected volatility of 67%,
71% and 71%, respectively; risk free interest rate of 6%; and expected lives of
four years. The pro forma effect on net income for 1997, 1996 or 1995 is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
A summary of the status of the Company's Incentive Stock Option Plans as of
December 31, 1997, 1996 and 1995, and changes during the years ending on those
dates is presented below.
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year ..... 220,200 $4.63 277,500 $3.88 96,500 $1.82
Granted ................ 175,500 6.99 44,000 6.90 219,000 4.41
Exercised .............. (7,600) 4.00 (71,100) 2.21 (31,400) 1.75
Forfeited .............. (13,800) 6.36 (30,200) 6.73 (6,600) 2.28
Outstanding at
year-end .............. 374,300 5.68 220,200 4.63 227,500 4.41
Options exercisable
at year end ........... 83,400 4.50 25,000 4.10 58,500 1.82
Weighted-average fair
value of options
granted during
the year .............. 3.85 4.13 2.57
</TABLE>
D-39
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE I - STOCK OPTIONS - Continued
The following information applies to options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Number outstanding ........................... 374,300
Range of exercise prices ..................... $4.00 to $7.70
Weighted-average exercise price .............. $5.68
Weighted-average remaining contractual life .. 3.61
</TABLE>
The Company has also provided for the grant of non-qualified stock options to
the Company's non-employee directors. These options were granted to purchase
15,000 during 1996 at the stock's then fair market value, which was $7.25. Of
these options, 15,000 shares were outstanding at December 31, 1997.
NOTE J - DISCONTINUED OPERATIONS
During the second quarter of 1998, as a result of the potential merger of
QuesTech and CACI International, a decision was made to dispose of the
commercial packaging operation, QuesTech Packaging, Inc. (QTPI). QTPI designs
and manufactures plastic containers utilizing its patented process and custom
designed manufacturing equipment.
QuesTech management had been exploring various alternatives for disposing of
QTPI, including an offer from QTPI management to purchase the manufacturing
operations. On August 31, 1998 the sole shareholder of QTPI authorized the
dissolution of QTPI in light of the inability of QTPI management to secure
financing for its proposed purchase. In association with the decision to
dissolve QTPI, the Company recorded a charge of approximately $2.1 million
representing the anticipated loss on disposal, net of tax effects, during the
third quarter of fiscal year 1998.
The disposal of QTPI has been accounted for as discontinued operations and
accordingly, its operations have been segregated and reported as discontinued
operations in the accompanying Consolidated Balance Sheets, Consolidated
Statements of Earnings and Consolidated Statements of Cash Flows for all years
presented. Since the decision to dispose of the
D-40
<PAGE>
QuesTech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE J - DISCONTINUED OPERATIONS
manufacturing division, the Company operates in one business segment on a
continuing basis.
The assets and liabilities of QuesTech Packaging, Inc. as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash ............................. $ 10,800
Accounts Receivable .............. 400,000
Inventory ........................ 69,200
Prepaid and Other Assets ......... 3,000
----------
Total Current Assets ................. $ 483,000
Property and equipment, net ...... 2,333,700
Other non-current assets ......... 19,300
----------
Total Assets ......................... 2,836,000
----------
Current Liabilities
Accounts Payable ................. $ 14,500
Accrued Liabilities .............. 138,900
----------
Total Current Liabilities ............ $ 153,400
----------
Net assets to be disposed of ......... $2,682,600
----------
----------
</TABLE>
NOTE K - SUBSEQUENT EVENTS
In May 1998, the Company entered into a letter of intent which proposes a merger
of the company with CACI Acquisition Corporation, an entity formed by CACI
International Inc. If a proposal to approve and adopt the merger is approved by
the Company's shareholders, the Company's Shareholder's will receive a cash
payment of $18.13 per share.
D-41
<PAGE>
SUPPLEMENTAL INFORMATION
D-42
<PAGE>
QuesTech, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reserve for unrecovered
contract costs and
doubtful accounts
Balance at Beginning of
Period ............... $2,112,800 $2,053,100 $1,853,300
Additions:
Charged to Costs and
Expenses ........... -- 59,700 185,000
Charged to Other
Accounts ........... -- -- 17,600
Deductions: ............ (628,500) -- (2,800)
---------- ---------- ----------
Balance at End of
Period ........... $1,484,300 $2,112,800 $2,053,100
---------- ---------- ----------
---------- ---------- ----------
Current .......... $1,484,300 (1) $2,112,800 (1) $2,053,100 (1)
---------- ---------- ----------
---------- ---------- ----------
Non-current ...... $ -- $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Valuation allowance for
deferred tax asset
Balance at Beginning of
Period ............... $ 262,000 $ 148,000 $ 148,000
Additions:
Charged to Income
Tax Expense ........ -- 114,000 --
Charged to Other
Accounts ........... -- -- --
Deductions:
Balance at End of
Period ........... $ 262,000 $ 262,000 $ 148,000
---------- ---------- ----------
---------- ---------- ----------
Current .......... $ -- $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Non-current ...... $ 262,000 $ 262,000 $ 148,000 (2)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(1) Included in accounts receivable - trade.
(2) Included in deferred tax asset - long-term.
D-43
<PAGE>
APPENDIX E
- - -------------------------------------------------------------------------------
QuesTech, Inc.
Statement of Operations
($ in 000's)
<TABLE>
<CAPTION>
Projected
1998 1999 2000
--------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Revenue growth................... $ 84,848 100.0% $ 91,884 100.0% $ 99,684 100.0%
7.9 8.3 8.5
Operating expenses
Salaries, wages and employee benefits... 44,121 47,780 51,836
52.0 52.0 52.0
Other operating expenses................ 35,636 38,591 41,867
--------- --------- ---------
42.0 42.0 42.0
Total operating expenses......... 79,757 86,371 93,703
Operating income........................ 5,091 6.0 5,513 6.0 5,981 6.0
Other expenses
Interest income......................... -- -- -- -- -- --
Interest expense........................ 378 0.4 251 0.3 187 0.2
Depreciation............................ 1,150 1.4 1,364 1.5 1,578 1.8
Amortization............................ 147 0.2 147 0.2 147 0.1
--------- ----- --------- ----- --------- -----
Total operating expenses......... 1,674 2.0 1,762 1.9 1,912 1.9
Earnings Before Tax..................... 3,417 4.0 3,751 4.1 4,069 4.1
Income tax (40%)........................ 1,367 1.6 1,500 1.6 1,628 1.6
--------- ----- --------- ----- --------- -----
2.4% 2.4% 2.4%
Net Income.............................. 2,050 2,251 2,441
--------- --------- ---------
--------- --------- ---------
EBITDA 5,091 5,513 5,981
</TABLE>
<TABLE>
<CAPTION>
2001 2002
--------- ---------
<S> <C> <C> <C> <C>
Revenue
Revenue growth................... $108,415 100.0% $118,310 100.0%
8.8 9.1
Operating expenses
Salaries, wages and employee benefits... 56,376 61,521
52.0 52.0
Other operating expenses................ 45,534 49,690
--------- ----- --------- -----
42.0 42.0
Total operating expenses......... 101,910 111,211
Operating income........................ 6,505 6.0 7,099 6.0
Other expenses
Interest income......................... -- -- -- --
Interest expense........................ 106 0.1 54 0.0
Depreciation............................ 1,793 1.7 2,007 1.7
Amortization............................ 147 0.1 147 0.1
--------- ----- --------- -----
Total operating expenses......... 2,045 1.9 2,208 1.9
Earnings Before Tax..................... 4,461 4.1 4,891 4.1
Income tax (40%)........................ 1,784 1.6 1,956 1.7
--------- ----- --------- -----
2.5% 2.5%
Net Income.............................. 2,677 2,934
--------- ---------
--------- ---------
EBITDA 6,505 7,099
</TABLE>
