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CIK-0000737033 ---------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20548
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.________)*
QuesTech, Inc.
________________________________________________________________________________
(Name of Issuer)
Common Stock, $.05 par value
________________________________________________________________________________
(Title of Class of Securities)
74835710
________________________________________________________________________________
(CUSIP Number)
Michael P. Rivera, Esq. QuesTech, Inc.
7600-A Leesburg Pike, Falls Church, VA 22043 Phone: (703) 760-1003
________________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
March 25, 1998
________________________________________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person as previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE
FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1748 (10-97)
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74835710
CUSIP No.
- --------------------------------------------------------------------------------
1. Names of Reporting Persons.
I.R.S. Identification Nos. of above persons (entities only).
QuesTech, Inc. Stock Employee Compensation Trust
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2. Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [ ]
(b) [ ]
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3. SEC Use Only
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4. Source of Funds (See Instructions) SC
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings Is Required Pursuant
to Items 2(d) or 2(e)
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6. Citizenship or Place of Organization State of Virginia
================================================================================
7. Sole Voting Power 0
---------------------------------------------------------------
Number of
Shares 8. Shared Voting Power 472,978
Beneficially
Owned ---------------------------------------------------------------
by Each
Reporting 9. Sole Dispositive Power 0
Person With
---------------------------------------------------------------
10. Shared Dispositive Power 472,978
- --------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person 472,978
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12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
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13. Percent of Class Represented by Amount in Row (11) 24.7%
- --------------------------------------------------------------------------------
14. Type of Reporting Person (See Instructions)
OO
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INSTRUCTIONS FOR COVER PAGE
(1) Names and I.R.S. Identification Numbers of Reporting Persons -- Furnish
the full legal name of each person for whom the report is filed - i.e.,
each person required to sign the schedule itself - including each member
of a group. Do not include the name of a person required to be identified
in the report but who is not a reporting person. Reporting persons that
are entities are also requested to furnish their I.R.S. identification
numbers, although disclosure of such numbers is voluntary, not mandatory
(see "SPECIAL INSTRUCTIONS FOR COMPLYING WITH SCHEDULE 13D" below).
(2) If any of the shares beneficially owned by a reporting person are held as
a member of a group and such membership is expressly affirmed, please
check row 2(a). If the membership in a group is disclaimed or the
reporting person describes a relationship with other persons but does not
affirm the existence of a group, please check row 2(b) [unless a joint
filing pursuant to Rule 13d-1(f)(1) in which case it may not be necessary
to check row 2(b)].
(3) The 3rd row is for SEC internal use; please leave blank.
2
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This Schedule 13D is being filed by the QuesTech, Inc. Stock Employee
Compensation Trust (the "SECT"), respecting the common stock, $.05 par value
("Common Stock"), of QuesTech, Inc. (the "Issuer").
ITEM 1. SECURITY AND ISSUER.
The class of equity security is the Common Stock. The Issuer is QuesTech,
Inc., a Virginia corporation. The address of the Issuer's principal executive
offices is:
7600-A Leesburg Pike
Falls Church, Virginia 22043
ITEM 2. IDENTITY AND BACKGROUND.
The identity, business or residence address, and occupation (as
applicable) of the Reporting Person is as follows:
The QuesTech, Inc. Stock Employee Compensation Trust, or "SECT", is a
Virginia state law trust governed by the Amended and Restated Stock Employee
Compensation Trust Agreement effective as of March 25, 1998. The SECT was
originally established by the Issuer effective as of December 31, 1993. The
address of the SECT is:
QuesTech, Inc. Stock Employee Compensation Trust
c/o Vincent L. Salvatori, Trustee
7600-A Leesburg Pike
Falls Church, Virginia 22043
There are five Trustees of the SECT:
Edward G. Broenniman
Gerald F. Mayefskie
Sebastian P. Musco
Vincent Russo
Vincent L. Salvatori
The Trustees, who are all U.S. citizens, also are members of the Board of
Directors of the Issuer.
Neither the Trust nor any of the Trustees (i) has been convicted during
the last five years in a criminal proceeding (excluding traffic violations or
similar misdemeanors), or (ii) has been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction leading to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
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ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On March 26, 1998, the Issuer sold 296,847 shares of its Common Stock,
including 268,000 newly-issued shares (at the current fair market value of $8.00
per share) and 28,847 shares that had been held as treasury stock (at the
respective prices at which the shares had been acquired by the Issuer), to the
SECT in exchange for a promissory note in the amount of $2,324,293.75 (the
"Note"). The Note is payable through the cash contributions, dividends and
earnings of the SECT, including the cash exercise price received by the SECT
when shares held by the SECT are sold to persons exercising options under
certain stock option plans of the Issuer.
On December 31, 1993, the SECT acquired 221,792 shares of Common Stock
from the Issuer in exchange for $432,500, an amount borrowed by the SECT from
the Issuer. As a result of the repayments to the Issuer, the amount outstanding
under this loan as of March 26, 1998, was $344,631.05.
ITEM 4. PURPOSE OF TRANSACTION.
The Issuer established the SECT in order to provide assurance of the
availability of shares of its Common Stock as necessary to satisfy certain of
its obligations under its employee and non-employee director stock option plans.
As of March 26, 1998, these included the QuesTech, Inc. 1982 Incentive Stock
Option Plan, the QuesTech, Inc. 1994 Incentive Stock Option Plan, the QuesTech,
Inc. 1996 Stock Option Plan, and the QuesTech, Inc. Stock Option Plan for
Non-Employee Directors (collectively, the "Plans"). While the shares currently
held by the SECT are sufficient to satisfy all obligations under the Plans, the
SECT may in the future acquire additional shares from the Issuer as necessary or
appropriate to fund any additional obligations under the Plans or any future
employee benefit plan of the Issuer, as determined by the Board of Directors of
the Issuer.
As described more fully in Item 5 below, the voting, tender or exchange of
the shares of Common Stock held by the SECT will be done solely in accordance
with the directions of the participants in the Plans. To the best knowledge of
the Reporting Person, there are no arrangements or understandings that place the
Plan participants under any obligation to direct the voting, tender or exchange
of the shares in the SECT in any particular manner (other than the Fourth
Shareholders Agreement of QuesTech, Inc., dated December 16, 1983, as amended,
under which the parties agreed to vote their respective shares for one another
as directors of the Issuer, as disclosed in the Schedule 13G filed by Vincent L.
Salvatori and Sebastian P. Musco on February 17,
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1998). Being employees or directors of the Issuer, however, the Plan
participants may decide to direct their shares in a manner consistent with the
positions of management of the Issuer.
The Issuer is aware that the creation of the SECT and the ownership of
24.7% of the outstanding Common Stock by the SECT may have certain anti-takeover
effects. Under the Virginia Stock Corporation Act, certain merger transactions
may require a two-thirds vote of the shareholders, and certain acquisition
transactions may require a majority shareholder vote with the shares of the
acquiring person and certain others being excluded. The creation of the SECT may
thus make it more difficult for a potential acquiror to obtain an affirmative
vote.
Except as set forth in the preceding paragraphs, the Reporting Person has
no current plans or proposals that relate to or would result in the acquisition
or disposition of securities of the Issuer; any extraordinary corporate
transaction involving the Issuer or a subsidiary; a sale or transfer of a
material amount of assets of the Issuer or any subsidiary; any change in the
present board of directors or management of the Issuer; any material change in
the present capitalization or dividend policy of the Issuer; any other material
change in the Issuer's business or corporate structure; changes in the Issuer's
charter, bylaws or similar instruments that may impede the acquisition of
control of the Issuer by any other person; causing a class of securities of the
Issuer to be delisted from a national securities exchange; a class of equity
securities of the Issuer becoming eligible for termination of registration under
Section 12(g)(4) of the Securities Exchange Act of 1934; or any similar action.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
As of March 26, 1998, following the acquisition described in Item 3 above,
the SECT held 472,978 shares of Common Stock, constituting 24.7% of total shares
outstanding.
Under the terms of the SECT, shares held in the SECT are voted, tendered
in response to a tender offer or exchanged in response to an exchange offer by
the Trustees pursuant to the instructions of the current employees or
non-employee directors of the Issuer who participate in the Plans. Each
participant's directions are applied to the shares of Common Stock allocated to
the participant's account in the Plans. Any undirected shares are to be voted,
tendered or exchanged by the Trustees in proportion to the voting, tendering or
exchange directions that were received from the participants; any unallocated
shares are to be voted in proportion to the voting directions that were
received, but cannot be tendered or exchanged. Participant directions are to be
held as confidential by the Trustees and are not to be divulged or released to
any other person affiliated with the Issuer. Under these provisions, the SECT
may be deemed
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to have shared voting and dispositive power over the shares of Common Stock held
by the SECT, sharing such powers with the Plan participants.
Other than in accordance with directions as described in the foregoing
paragraph or upon the exercise of options granted under the Plans, shares of
Common Stock held by the SECT may not be sold or disposed of until termination
of the SECT, which occurs at the earlier of (i) December 31, 2008, (ii) when the
loans to the SECT are repaid in full, or (iii) upon action of the Board of
Directors of the Issuer. Upon termination, the Trustees are required to sell all
the shares and other assets held by the SECT as soon as practicable as directed
by the Board of Directors of the Issuer and, after all loans by the Issuer have
been repaid, to distribute all remaining proceeds to Plan participants,
employees of the Issuer, or others, as directed by the Board of Directors of the
Issuer.
The foregoing is only a summary of certain provisions of the SECT
Agreement and is qualified by reference to that Agreement, a copy of which is
filed as Exhibit 1 hereto and is incorporated herein by reference.
The filing of this Statement on Schedule 13D by the SECT does not
constitute, and should not be construed as, an admission that either the SECT or
its Trustees beneficially own any securities covered by this Statement or are
required to file this Statement. In this regard, the SECT and its Trustees (as
such) disclaim any beneficial ownership of the securities held by the SECT.
Other than the acquisition of 296,847 shares of Common Stock from the
Issuer on March 26, 1998, as described in Item 3, the SECT has not engaged in
any transactions in the Common Stock of the Issuer during the sixty days
preceding March 26, 1998.
Other than the Issuer upon termination of the SECT, as described above,
there are no other persons with the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale or, the securities
described herein.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
The Issuer and the Trustees have entered into the QuesTech, Inc. Amended
and Restated Stock Employee Compensation Trust Agreement, and the Trustees have
issued the Note to the Issuer.
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ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
The following are filed as exhibits:
Exhibit 1: QuesTech, Inc. Amended and Restated Stock Employee
Compensation Trust Agreement dated as of March 25, 1998
Exhibit 2: Promissory Note dated March 26, 1998
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: April 6, 1998 QUESTECH, INC. STOCK EMPLOYEE
COMPENSATION TRUST
By: /s/ Vincent L. Salvatori
-------------------------------
Vincent L. Salvatori,
Trustee
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EXHIBIT 1
QUESTECH, INC.
AMENDED AND RESTATED STOCK EMPLOYEE COMPENSATION TRUST
THIS AMENDED AND RESTATED TRUST AGREEMENT (the "Agreement") is made
effective as of March 25, 1998, by and among QuesTech, Inc., a Virginia
corporation, and EDWARD G. BROENNIMAN, GERALD F. MAYEFSKIE, SEBASTIAN P. MUSCO,
VINCENT RUSSO and VINCENT L. SALVATORI, as individual trustees, and their
successors (each, individually, a "Trustee," and collectively, the "Trustees");
W I T N E S S E T H:
WHEREAS, the Company established a Stock Employee Compensation Trust (the
"Trust") pursuant to an Amended Stock Employee Compensation Trust Agreement
effective as of December 31, 1993 (the "Trust Agreement");
WHEREAS, the Trustees desire to act as trustees of the Trust, and to hold
legal title to the assets of the Trust, in trust, for the purpose hereinafter
stated and in accordance with the terms hereof;
WHEREAS, the Company has previously adopted the Plans (as defined below);
WHEREAS, the Company desires to provide assurance of the availability of
the shares of its common stock necessary to satisfy certain of its obligations
under the Plans (as defined below);
WHEREAS, the Company desires that the assets to be held in the Trust Fund
(as defined below) should be principally or exclusively securities of the
Company and, therefore, expressly waives any diversification of investments that
might otherwise be necessary, appropriate, or required pursuant to applicable
provisions of law;
WHEREAS, the members of the Board of Directors of the Company have been
appointed as Trustees and have accepted such appointment as of the date set
forth first above; and
WHEREAS, the Company and the Trustees desire to amend and restate the
Trust Agreement on the terms and conditions set forth herein;
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NOW, THEREFORE, the parties hereto hereby establish the Trust and agree
that the Trust will be comprised, held and disposed of as follows:
1. TRUST, TRUSTEE AND TRUST FUND
1.1. Trust. This Agreement and the Trust shall be known as the QuesTech,
Inc. Stock Employee Compensation Trust. The parties intend that the
Trust will be an independent legal entity with title to and power to
convey all of its assets. The parties hereto further intend that the
Trust not be subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). However, all decisions and
interpretations by the Trustee shall be governed by the arbitrary
and capricious standard, as interpreted under applicable ERISA law.
The assets of the Trust will be held, invested and disposed of by
the Trustee, in accordance with the terms of the Trust.
1.2. Trustee. The Trustees named above are hereby designated as the
trustees hereunder, to receive, hold, invest, administer and
distribute the Trust Fund in accordance with this Agreement, the
provisions of which shall govern the power, duties and
responsibilities of the Trustees.
1.3. Trust Fund. The assets held at any time and from time to time under
the Trust collectively are herein referred to as the "Trust Fund"
and shall consist of the Common Stock of the Company, contributions
received by the Trustee, proceeds of any loans, investments and
reinvestment thereof, the earnings and income thereon, less
disbursements therefrom. Except as herein otherwise provided, title
to the assets of the Trust Fund shall at all times be vested in the
Trustees and securities that are part of the Trust Fund shall be
held in such manner that the Trustees' name and the fiduciary
capacity in which the securities are held are fully disclosed,
subject to the right of the Trustees to hold title in bearer form or
in the name of a nominee, and the interests of others in the Trust
Fund shall be only the right to have such assets received, held,
invested, administered and distributed in accordance with the
provisions of the Trust.
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1.4. Trust Fund Subject to Claims. Notwithstanding any provision of this
Agreement to the contrary, the Trust Fund shall at all times remain
subject to the claims of the Company's general creditors under
federal and state law.
In addition, the Chief Executive Officer of the Company shall have
the duty to inform the Trustees in writing of the Company's
insolvency. If a person claiming to be a creditor of the Company
alleges in writing to any Trustee that the Company has become
insolvent, the Chief Executive Officer shall determine the validity
of such claims and if found to be valid, shall notify the Trustees
to discontinue allocations pursuant to Article 3.
Unless the Trustees have actual knowledge of the Company's
insolvency, or have received notice from the Company or a person
claiming to be a creditor alleging that the Company is insolvent,
the Trustees shall have no duty to inquire whether the Company is
insolvent. The Trustees may in all events rely on such evidence
concerning the Company's solvency as may be furnished to the
Trustees that provides the Trustees with a reasonable basis for
making a determination concerning the Company's insolvency.
If at any time the Trustees have determined that the Company is
insolvent, the Trustees shall discontinue allocations pursuant to
Article 3 and shall hold the Trust Fund for the benefit of the
Company's general creditors. Nothing in this Trust Agreement shall
in any way diminish rights of employees as general creditors of the
Company with respect to benefits due under the Plan(s) or otherwise.
The Trustees shall resume allocations pursuant to Article 3 only
after the Trustees have determined that the Company is not insolvent
(or is no longer insolvent).
1.5. Definitions. In addition to the terms defined in the preceding
portions of this Agreement, certain capitalized terms have the
meanings set forth below:
"Board of Directors" means the board of directors of the Company.
"Calculation Period" means a period consisting of a calendar year.
"Change of Control" means any of the following events:
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(a) an acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty-one percent (51%)
or more of the combined voting power of the then outstanding
voting securities of the Company; provided, however, that the
following acquisitions shall not constitute a Change in
Control: (i) an acquisition by or directly from the Company,
(ii) an acquisition by any employee benefit plan or trust
sponsored or maintained by the Company; and (iii) any
acquisition described in subclauses (A) or (B) of subsection
(b) below; or
(b) approval by the stockholders of the Company of (i) a complete
dissolution or liquidation of the Company, (ii) a sale or
other disposition of all or substantially all of the Company's
assets or (iii) a reorganization, merger, or consolidation
("Business Combination") unless either (A) all or
substantially all of the stockholders of the Company
immediately prior to the Business Combination own more than
fifty percent (50%) of the voting securities of the entity
surviving the Business Combination, or the entity which
directly or indirectly controls such surviving entity, in
substantially the same proportion as they owned the voting
securities of the Company immediately prior thereto, or (B)
the consideration (other than cash paid in lieu of fractional
shares or payment upon perfection of appraisal rights) issued
to stockholders of the Company in the Business Combination is
solely common stock which is publicly traded on an established
securities exchange in the United States or on the National
Association of Securities Dealers' Automated Quotation System
("NASDAQ").
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means QuesTech, Inc., a Virginia corporation, or any successor
thereto. References to the Company shall include its subsidiaries
where appropriate.
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"Company Stock" means shares of common stock, par value $0.05 per share,
issued by the Company or any successor securities.
"Excess Shares" has the meaning set forth in Section 3.3.
"Extraordinary Dividend" means any dividend or other distribution of each
or other property (other than Company Stock) made with respect to
Company Stock, which the Board of Directors declares generally to be
other than an ordinary dividend.
"Fair Market Value" means as of any date the average of the highest and
lowest report sales price, determined in the regular way on such
date (or if such date is not a trade day, then on the most recent
prior date which is a trading day) of a share of Company Stock as
reported on the composite tape, or similar reporting system, for
issues listed on NASDAQ (or, if the Company Stock is no longer
traded on the NASDAQ Exchange, on such other national securities
exchange on which the Company Stock is listed or national securities
or central market system upon which transactions in Company Stock
are reported, as either shall be designated by the Board of
Directors for the purposes hereof) or if sales of Common Stock are
not reported in any manner specified above, the average of the high
bid and low asked quotations on such date (or if such date is not a
trading day, then on the most recent prior date which is a trading
day) in the over-the-counter market as reported by NASDAQ or, if not
so reported, by National Quotation Bureau, Incorporated or similar
organization selected by the Board of Directors.
"Loans" means (a) the loan and extension of credit to the Trust evidenced
by the promissory note made and authorized by the Trust dated
December 31, 1993, executed by the Chairman of the Company as agent
for the Trustees, with which the Trust purchased a portion of the
Company Stock; (b) the loan and extension of credit to the Trust
evidenced by the promissory note made and authorized by the Trust
dated March __, 1998, executed by the Chairman of the Company as
agent for the Trustee, with which the Trust purchased a portion of
the Company Stock; and (c) any other loan by the Company to the
Trust for the purpose of purchasing Company Stock.
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"Plans" or "QTI Plans" means the employee benefit plans and non-employee
directors stock option plan listed on Schedule A hereto as the same
may be amended from time to time by the Board of Directors,
including any successors thereto, and any other employee benefit
plan or non-employee directors stock option plans of the Company or
its subsidiaries designated as such by the Board of Directors.
"Participant" means as of any date any individual who is employed by the
Company or any subsidiary of the Company or is a non-employee
director of the Company or any subsidiary of the Company as of such
date and is a participant in a Plan.
"QTI Plan Participant Certification" means a certification to be delivered
by the Participant in a QTI Plan to the Trustee pursuant to Section
5.4, which sets forth the directions made by each Participant as to
voting or tendering of the Company Stock allocated to his account in
the respective QTI Plan with respect to the voting or tendering
decision at issue.
"Suspense Account" means a separate account to be maintained by the
Trustees to hold Excess Shares pursuant to the terms of Article 3
hereof.
"Trustee" means those persons and corporate entities or any successor
trustee as appointed by the Board of Directors.
"Trust Year" means the period beginning on the date hereof and ending on
December 31, 1994, and each twelve (12) month period beginning on
January 1 and ending on December 31 thereafter.
2. CONTRIBUTIONS AND DIVIDENDS
2.1. Initial Contribution. For the initial Trust Year the Company has
been credited with a contribution to the Trust in cash of Four
Hundred Thirty-Two Thousand Five Hundred and 00/100 Dollars
($432,500.00), which enabled the Trustees to acquire 221,792 shares
of Company Stock which have been and are being utilized for purposes
of funding Common Stock issuances upon the exercise of stock options
issued by the Company under the QTI Plans, as more specifically set
forth in Section 3.1 below. The Trust returned to the Company
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a promissory note in the principal sum of Four Hundred Thirty-Two
Thousand Five Hundred and 00/100 Dollars ($432,500.00), which note
is the obligation of the Trust.
2.2. Additional Contribution. For the Trust Year 1998 the Company shall
be credited with a contribution to the Trust in cash of Two Million
Three Hundred Twenty Four Thousand Two Hundred Ninety Three and
75/100 Dollars ($2,324,293.75), which amount represents the fair
market value of 296,847 shares of Company Stock on date of
purchase thereof and which amount shall be used by the Trustees to
acquire said 296,847 shares of Company Stock for purpose of funding
Common Stock issuances upon the exercise of stock options issued by
the Company under the QTI Plans, as more specifically set forth in
Section 3.1 below. In recognition thereof, the Trust shall return to
the Company a promissory note having a principal sum equal to the
cash contribution made by the Company, which note shall be the
obligation of the Trust.
2.3. Repayment and Forgiveness of Loans. For each Trust Year in which
Plan Participants exercise stock options under the QTI Plans, the
Company may attribute to repayment of the Loans (in the form of a
reduction of the principal amount outstanding thereunder) the cash
exercise price received from such Plan Participants (a "Principal
Reduction"). Unless otherwise expressly provided herein, the
Trustees shall apply all cash contributions, dividends and earnings
of the Trust to the payment of the Loans. Such payments shall be
applied on a pro rata basis to each Loan outstanding based on the
principal amount outstanding on such Loan in proportion to the
aggregate principal amount outstanding on all Loans.
2.4. Dividends. Except as otherwise provided herein, dividends paid in
cash on Company Stock held by the Trust, including Company Stock
held in the Suspense Account, shall be applied to repay principal
due under the Loans. Dividends which are not in cash or in Company
Stock (including Extraordinary Dividends, or portions thereof) shall
be reduced to cash by the Trustees and shall be applied to repay
principal due under the Loans.
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3. RELEASE AND ALLOCATION OF COMPANY STOCK
3.1. Release of Shares. In exchange for each Principal Reduction (as
provided in Section 2.2 above), the Trust shall release to the
Company the number of shares of Common Stock for which stock options
were exercised in connection with such Principal Reduction, which
shares then may be registered in the name of the Plan Participant(s)
exercising such options.
3.2. Allocations. For the purposes of this Trust, shares of Company Stock
shall be allocated as directed by the Trustees to the Plans and the
Plan Participants as the Trustees may determine in accordance with
the requirements of the QTI Plans. The Trustees' discretion shall be
limited to the amounts allocated among the QTI Plans, with the
allocation itself being mandatory. Subject to this Article 3, the
shares have been allocated in the manner set forth on Schedule A
hereto.
3.3. Excess Shares. Shares which are not allocated pursuant to the
preceding paragraph ("Excess Shares") shall be held by the Trustee
in the Suspense Account and shall be allocated in accordance with
the provisions of this Article 3.
4. COMPENSATION, EXPENSES AND TAX WITHHOLDING
The Trustees shall not be entitled to compensation for their
services as such. In the event a Trustee is substituted for the
members of the Board of Directors of the Company, the Company may
reimburse the reasonable legal, accounting and appraisal fees,
expenses and other charges reasonably incurred in connection with
the administration, management and distribution of the Trust Fund by
such Successor Trustee.
5. ADMINISTRATION OF TRUST FUND
5.1. Management and Control of Trust Fund. Subject to the terms of this
Agreement, the Trustees shall have exclusive authority, discretion
and responsibility to manage and control the assets of the Trust
Fund.
5.2. Investment of Funds. Except as otherwise provided in Section 2.2 and
in this Section 5.2, the Trustees shall invest and reinvest the
Trust Fund exclusively
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in Company Stock, including any increases thereto resulting from the
proceeds of a tender offer, recapitalization or similar transaction
which, if not in Company Stock, shall be reduced to cash as soon as
practicable. The Trustees may invest any portion of the Trust Fund
temporarily pending investment in Company Stock, distribution or
payment of expenses in (i) investments in United States Government
Obligations with maturities of less than one (1) year, (ii)
interest-bearing accounts including but not limited to certificates
of deposit, time deposits, saving accounts and money market accounts
with maturities of less than one (1) year in any bank, with
aggregate capital in excess of One Billion Dollars ($1,000,000,000)
and a Moody's Investor Services rating of at lease P1, or an
equivalent rating from a nationally recognized ratings agency, which
accounts are insured by the Federal Deposit Insurance Corporation or
other similar federal agency, (iii) obligations issued or guaranteed
by any agency or instrumentality of the United States of America
with maturities of less than one (1) year or (iv) short-term
discount obligations of the Federal National Mortgage Association.
5.3. Trustees' Administrative Powers. Except as otherwise provided
herein, and subject to the Trustees' duties hereunder, the Trustees
shall have the following powers and rights, in addition to those
provided elsewhere in this Agreement or by law:
(a) to retain any asset of the Trust Fund;
(b) subject to Section 5.4 and Article 3, to sell, transfer,
mortgage, pledge, lease or otherwise dispose of, or grant
options with respect to any Trust Fund assets at public or
private sale;
(c) with the concurrence of the Company, to borrow from any lender
(including the Company pursuant to the Loans), to acquire
Company Stock as authorized by this Agreement, to enter into
lending agreements upon such terms (including reasonable
interest and security for the loan and rights to renegotiate
and prepay such loan) as may be determined by the Board of
Directors; provided, however, that any collateral given by the
Trustees for the Loans shall be limited to cash and property
contributed by the Company to the Trust and dividends paid on
Company Stock held in
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<PAGE> 10
the Trust Fund and shall not include Company Stock acquired
with the proceeds of Loans;
(d) to settle, submit to arbitration, compromise, contest,
prosecute or abandon claims and demands in favor of or against
the Trust Fund;
(e) to vote or to give any consent with respect to any such
securities, including any Company Stock, held by the Trust
either in person or by proxy for any purpose provided that the
Trustee shall vote, tender or exchange all shares of Company
Stock as provided in Section 5.4;
(f) to exercise any of the powers and rights of any individual
owner with respect to any asset of the Trust Fund and to
perform any and all other acts that in their judgment are
necessary or appropriate for the proper administration of the
Trust Fund, even though such powers, rights and acts are not
specifically enumerated in this Agreement;
(g) to employ such accountants, actuaries, investment bankers,
appraisers, other advisors and agents as may be reasonably
necessary in collecting, managing, administering, investing,
valuing, distributing and protecting the Trust Fund or the
assets thereof or any borrowings of the Trustee made in
accordance with Section 5.3(c); and to pay their reasonable
fees and expenses, which shall be deemed to be expenses of the
Trust and for which the Trustees shall be reimbursed in
accordance with Section 4.1;
(h) to cause any asset of the Trust Fund to be issued, held or
registered in the Trustees' name or in the name of their
nominee, or in such form that title will pass by delivery,
provided that the records of the Trustees shall indicate the
true ownership of such assets;
(i) to utilize another entity as custodian to hold, but not invest
or otherwise manage or control, some or all of the assets of
the Trust Funds; and
(j) to consult with legal counsel (who may also be counsel for the
Company generally) with respect to any of their duties or
obligations hereunder; and to pay the reasonable fees and
expenses of such counsel, which shall be
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<PAGE> 11
deemed to be expenses of the Trust and for which the Trustees
shall be reimbursed in accordance with Section 4.1.
Notwithstanding the foregoing, neither the Trust nor the Trustees
shall have any power to, and shall not, engage in any trade or
business regarding the Trust Fund. All decisions by the Trustees
shall be governed by a majority vote of the Trustees.
5.4. Voting And Tendering Of Company Stock.
(a) Voting of Allocated Company Stock. The Trustee shall exercise
reasonable diligence to follow the directions of the
Participants as to the manner in which shares of Company Stock
held by the Trust are to be voted on each matter brought
before an annual or special stockholders' meeting of the
Company or the manner in which any consent is to be executed,
in each case as provided below. Before each such meeting of
stockholders, the Trustees shall cause to be furnished to each
Participant of each QTI Plan, including non-qualified
optionees, a copy of the proxy solicitation material received
by the Trustees, together with a form requesting confidential
instructions as to how to vote the shares of Company Stock
held by the Trustees. Upon timely receipt of the Participant's
Certification, the Trustees shall on each such matter vote the
number of shares of Company Stock held by the Trust as
follows:
The Trustee shall, with respect to each QTI Plan, assign to
each Participant, the number of shares (the "QTI Participant
Directed Account") equal to the total number of shares of
Common Stock covered by all of the Participant's option
grants. Each share assigned to each Participant in accordance
with the previous sentence shall be subject to such
Participant's direction to the Trustees with respect to shares
of Company Stock allocated to his account in such QTI Plan, as
reflected in the Participant Certification. Any shares of
Company Stock which remain undirected pursuant to the
foregoing provisions shall be voted in proportion to the
voting of the shares for which directions were received.
Similar provisions shall apply in the case of any action by
shareholder consent without a meeting.
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<PAGE> 12
(b) Voting of Unallocated Company Stock. The Trustees shall vote
the unallocated Company stock on each matter brought before an
Annual or Special Stockholders Meeting of the Company in the
same proportion as they vote the allocated shares.
(c) Tender or Exchange of Company Stock. The Trustees shall use
their best efforts timely to distribute or cause to be
distributed to the Participants of a QTI Plan any written
materials distributed to stockholders of the Company generally
in connection with any tender offer or exchange offer,
together with a form requesting confidential instructions on
whether or not to tender or exchange shares of Company Stock
held in the Trust. Upon timely receipt of the Participants'
Certifications, the Trustees shall tender or not tender the
Participant Directed Amount for each Participant in accordance
with such Participant's direction in which he participates
with respect to shares of Company Stock allocated to his
account in such QTI Plan, as set forth in the Participant
Certification. The Participant of any QTI Plan shall not be
limited in the number of instructions to tender or withdraw
from tender which it may give but shall not have the right to
give instructions to tender or withdraw from tender after a
reasonable time established by the Trustees. If the Trustees
shall not receive timely instruction by means of the
Participant's Certification as to the manner in which to
respond to such a tender or exchange offer, the Trustee shall
tender or exchange or not tender or exchange any shares of
Company Stock with respect to which the Participant of any QTI
Plan has the right of direction in the same proportion as the
shares of Company Stock for which the Trustees are directed.
(d) The Company shall maintain appropriate procedures to ensure
that all instructions by Participants are collected,
tabulated, and transmitted by the Participants to the Trustees
without being divulged or released to any other person
affiliated with the Company or its affiliates. All actions
taken by Participants and the contents of the Participant's
Certification shall be held confidential by the Trustees and
shall not be divulged or released to any person, other than
(i) agents of the Trustees who are not affiliated with the
Company or its affiliates or (ii) by virtue of the execution
by the
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<PAGE> 13
Trustees of any proxy, consent or letter of transmittal for
the shares of Company Stock held in the Trust.
5.5. Indemnification.
(a) To the extent lawfully allowable, the Company shall and hereby
does indemnify and hold harmless each Trustee from and against
any claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage
or expense (including reasonable attorney's fees), which may
be asserted against it, in any way arising out of or incurred
as a result of its action or failure to act in connection with
the operation and administration of the Trust; provided that
such indemnification shall not apply to the extent that the
Trustee has acted in willful or negligent violation of
applicable law or its duties under this Trust or in bad faith.
No Trustee shall be under liability to any person for any loss
of any kind which may result (i) by reason of any action taken
by the Trustee in accordance with or contrary to the direction
of any Participant acting pursuant to Section 5.4(b)
(hereinafter collectively referred to as the "Directing
Participants"), (ii) by reason of the Trustee's failure to
exercise any power or authority or to take any action
hereunder because of the failure of any such Directing
Participant to give directions to the Trustee, as provided for
in this Agreement, or (iii) by reason of any act or omission
of any of the Directing Participants with respect to its
duties under this Trust. Each Trustee shall be fully protected
in acting upon any instrument, certificate, or paper delivered
by any Participant or beneficiary and believed in good faith
by the Trustee to be genuine and to be signed or presented by
the proper persons or persons, and the Trustee shall be under
no duty to make any investigation or inquiry as to any
statement contained in any such writing, but may accept the
same as conclusive evidence of the truth and accuracy of the
statements therein contained.
(b) The Company may, but shall not be required to, maintain
liability insurance to insure its obligations hereunder. If
any payments made by the Company, or the Trust pursuant to
this indemnity are covered by insurance, the Company or the
Trust (as applicable ) shall be subrogated to the rights of
the indemnified party against the insurance company.
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<PAGE> 14
(c) Without limiting the generality of the foregoing, the Company
may, at the request of any Trustee, advance to the Trustee
reasonable amounts of expenses, including reasonable
attorneys' fees and expenses, which the Trustee advises have
been incurred in connection with its investigation or defense
of any claim, demand, action, cause of action, administrative
or other proceeding arising out of or in connection with the
Trustee's performance of its duties under this Agreement.
5.6. General Duty to Communicate to the Board of Directors. The
Trustees shall promptly notify the Board of Directors of all
communications with or from any government agency or with
respect to any legal proceeding with regard to the Trust and
with or from any Plan Participants concerning their
entitlements under the Plans or the Trust.
6. ACCOUNTS AND REPORTS OF TRUSTEES
6.1. Records and Accounts of Trustees. The Trustees shall maintain
accurate and detailed records and accounts of all transactions of
the Trust, which shall be available at all reasonable times for
inspection or audit by any person designated by the Company and
which shall be retained as required by applicable law.
6.2. Fiscal Year. The fiscal year of the Trust shall be the twelve (12)
month period beginning on January 1 and ending on December 31.
6.3. Reports of Trustees. The Trustees shall prepare and present to the
Board of Directors a report for the period ending on the last day of
each fiscal year, and for such shorter periods as the Board of
Directors may reasonably request, listing all securities and other
property acquired and disposed of and all receipts, disbursements
and other transactions effected by the Trust after the date of the
Trustees' last account, and further listing all cash, securities,
and other property held by the Trust, together with the fair market
value thereof, as of the end of such period. In addition to the
foregoing the report shall contain such information regarding the
Trust Fund's assets and transactions as the Board of Directors in
its discretion may reasonably request.
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<PAGE> 15
6.4. Final Report. In the event of the resignation or removal of a
Trustee hereunder, the Board of Directors may request and the
Trustee shall then with reasonable promptness submit, for the period
ending on the effective date of such resignation or removal, a
report similar in form and purpose to that described in Section 6.3.
7. SUCCESSION OF TRUSTEE
7.1. Resignation of Trustee. Any of the Trustees or any successor thereto
may resign as Trustee hereunder at any time upon delivering a
written notice of such resignation, to take effect sixty (60) days
after the delivery thereof to the Secretary of the Company, unless
the Board of Directors accepts shorter notice; provided, however,
that no such resignation shall be effective until a Successor
Trustee has assumed the office of Trustee hereunder.
7.2. Removal of Trustee. Any of the Trustees or any successor thereto may
be removed by the Company by delivering to the Trustee so removed an
instrument executed by the Board of Directors. Such removal shall
take effect at the date specified in such instrument.
7.3. Appointment of Successor Trustee. Whenever any one of the Trustees
or any successor thereto shall resign or be removed or a vacancy in
the position shall otherwise occur, the Board of Directors shall use
its best efforts to appoint a Successor Trustee as soon as
practicable after receipt of a notice described in Section 7.1, or
the delivery to the Trustee of a notice described in Section 7.2, as
the case may be, but in no event more than one hundred eighty (180)
days after receipt or delivery, as the case may be, of such notice.
A Successor Trustee's appointment shall not become effective until
such successor shall accept such appointment by delivering its
acceptance in writing to the Company. If a successor is not
appointed within such one hundred eighty (180) day period, the
Trustee, at the Company's expense, may petition a court of competent
jurisdiction for appointment of a successor.
7.4. Succession to Trust Fund Assets. The title to all property held
hereunder shall vest in any successor Trustee acting pursuant to the
provisions hereof without the execution or filing of any further
instrument, but a resigning or removed Trustee shall execute all
instruments and do all acts necessary to
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<PAGE> 16
vest title in the successor Trustee. Each successor Trustee shall
have, exercise and enjoy all of the powers, both discretionary and
ministerial, herein conferred upon its predecessors. A successor
Trustee shall not be obliged to examine or review the accounts,
records, or acts of, or property delivered by, and previous Trustee
and shall not be responsible for any action or any failure to act on
the part of any previous Trustee.
7.5. Continuation of Trust. In no event shall the legal disability,
resignation or removal of a Trustee terminate the Trust, but the
Board of Directors shall forthwith appoint a successor Trustee in
accordance with Section 7.3 to carry out the terms of the Trust.
7.6. Continuance of Trustees' Powers in Event of Termination of the
Trust. In the event of the termination of the Trust, as provided
herein, the Trustees shall dispose of the Trust Fund in accordance
with the provisions hereof. Until the final distribution of the
Trust Fund, the Trustees shall continue to have all powers provided
hereunder as necessary or expedient for the orderly liquidation and
distribution of the Trust Fund.
8. AMENDMENT OR TERMINATION
8.1. Amendments. Except as otherwise provided herein, the Company may
amend the Trust at any time and from time to time in any manner
which it deems desirable, provided that no amendment which would
adversely effect the contingent rights of Plan participants may
change (i) the allocation requirement in Section 3.1 or Section 3.2,
(ii) the terms of Section 3.3, (iii) the provisions of Section 2.2
as to the use of dividends, (iv) the provisions of Section 5.4, (v)
the provisions of Section 8.2, or (vi) the provisions of this
Section 8.1. Notwithstanding the foregoing, the Company shall retain
the power under all circumstances to amend the Trust to correct any
errors or clarify any ambiguities or similar issues of
interpretation in this Agreement, such interpretation to be binding
on all interested persons.
8.2. Termination. Subject to the terms of this Section 8.2, the Trust
shall terminate on December 31, 2008 or any earlier date on which
the Loans are paid in full (the "Termination Date"). The Board of
Directors may terminate the Trust at
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<PAGE> 17
any time prior to the Termination Date. The Trust shall also
terminate automatically upon the Company giving the Trustee notice
of a Change of Control. As soon as practicable after receiving
notice from the Company of a Change of Control or upon any other
termination of the Trust, the Trustee shall sell all of the Company
Stock and other non-cash assets (if any) then held in the Trust Fund
as directed by the Board of Directors in good faith taking into
account the interests of a broad cross-section of individuals
employed by the Company. The proceeds of such sale shall first be
returned to the Company up to an amount equal to the principal
amount, plus any accrued interest, of all Loans outstanding on the
effective date of termination. The Company shall be deemed to have
forgiven all remaining amounts then outstanding under all Loans. Any
funds remaining in the Trust after such payment to the Company shall
be distributed with reasonable promptness to a broad cross-section
of Plan Participants or to individuals employed by the Company
generally or to any benefit plan or trust in which a broad
cross-section of individuals employed by the Company participate, as
the Board of Directors may in good faith determine taking into
account the best interests of the individuals employed by the
Company.
8.3. Form of Amendment or Termination. Any amendment or termination of
the Trust shall be evidenced by an instrument in writing signed by
an authorized officer of the Company, certifying that said amendment
or termination has been authorized and directed by the Company or
the Board of Directors, as applicable, and, in the case of any
amendment, shall be consented to be signature of the Trustees, if
required by Section 8.1.
9. MISCELLANEOUS
9.1. Controlling Law. The laws of the Commonwealth of Virginia shall be
the controlling law in all matters relating to the Trust, without
regard to conflicts of law.
9.2. Trustees Action. Any action required or permitted to be taken by the
Trustees may be taken on behalf of the Trustees by any individual so
authorized. The Company shall furnish to the Trustees the name and
specimen signature of each member upon whose statement of a decision
or direction the Trustees
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<PAGE> 18
are authorized to rely. Until notified of a change in the identity
of such person or persons, the Trustees shall act upon the
assumption that there has been no change.
9.3. Notices. All notices, requests, or other communications required or
permitted to be delivered hereunder shall be in writing, delivered
by registered or certified mail, return receipt requested as
follows:
To the Company: QuesTech, Inc.
7600A Leesburg Pike
Falls Church, Virginia 22043
Attention: Vincent L. Salvatori
Chairman & CEO
To the Trustees: Members of the Board of Directors
of QuesTech, Inc.
c/o QuesTech, Inc.
7600A Leesburg Pike
Falls Church, Virginia 22043
Attention: Secretary
Any party hereto may from time to time, by written notice given as
aforesaid, designate any other address to which notices, requests or other
communications addressed to it shall be sent.
9.4. Severability. If any provision of the Trust shall be held illegal,
invalid or unenforceable for any reason, such provision shall not
affect the remaining parts hereof, but the Trust shall be construed
and enforced as if said provision had never been inserted herein.
9.5. Protection of Persons Dealing with the Trust. No person dealing with
the Trustees shall be required or entitled to monitor the
application of any money paid or property delivered to the Trustees,
or determine whether or not the Trustees are acting pursuant to
authorities granted to them hereunder or to authorizations or
directions herein required.
9.6. Tax Status of Trust. It is intended that the Company, as grantor
hereunder, be treated as the owner of the entire trust and the trust
assets under Section
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<PAGE> 19
671, et seq. of the Code. Until advised otherwise, the Trustee may
presume that the Trust is so characterized for federal income tax
purposes and shall make all filings of tax returns on that
presumption.
9.7. Participants to Have No Interest in the Company by Reason of the
Trust. Neither the creation of the Trust nor anything contained in
the Trust shall be construed as giving any person, including any
individual employed by the Company or any subsidiary of the Company,
any equity or interest in the assets, business, or affairs of the
Company except to the extent that any such individuals are entitled
to exercise stockholder rights with respect to Company Stock
pursuant to Section 5.4.
9.8. Nonassignability. No right or interest of any person to receive
distributions from the Trust shall be assignable or transferable, in
whole or in part, either directly or by operation of law or
otherwise, including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, or bankruptcy, but excluding death
or mental incompetency, and no right or interest of any person to
receive distributions from the Trust shall be subject to any
obligation or liability or any such person, including claims for
alimony or the support of any spouse or child.
9.9. Gender and Plurals. Whenever the context requires or permits, the
masculine gender shall include the feminine gender and the singular
form shall include the plural form and shall be interchangeable.
9.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original.
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<PAGE> 20
IN WITNESS WHEREOF, the Company and the Trustee have caused this Agreement
to be signed, and their seals affixed hereto, by their authorized officers all
as of this day, month and year first above written.
ATTEST: QUESTECH, INC.
/s/ /s/
- ----------------------------- ------------------------------------
Corporate Secretary VINCENT L. SALVATORI
Chairman & Chief Executive Officer
TRUSTEES: TRUSTEES:
/s/ /s/
- ----------------------------- ------------------------------------
EDWARD G. BROENNIMAN GERALD F. MAYEFSKIE
/s/ /s/
- ----------------------------- ------------------------------------
SEBASTIAN P. MUSCO VINCENT RUSSO
/s/
------------------------------------
VINCENT L. SALVATORI
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<PAGE> 21
SCHEDULE A
TO
AMENDED STOCK EMPLOYEE COMPENSATION TRUST
1. QuesTech, Inc. 1982 Incentive Stock Option Plan
2. QuesTech, Inc. 1994 Incentive Stock Option Plan
3. QuesTech, Inc. 1996 Incentive Stock Option Plan
4. QuesTech, Inc. 1996 Stock Option Plan for Non-Employee Directors
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<PAGE> 1
EXHIBIT 2
PROMISSORY NOTE
$2,324,293.75 MARCH 25, 1998
FOR VALUE RECEIVED, the undersigned (the "Trustees"), in their capacity as
Trustees of the Questech, Inc. Stock Employee Compensation Trust (the "Trust")
hereby promise, on behalf of the Trust, to pay to the order of QuesTech, Inc.
(the "Lender") the aggregate principal amount of $2,324,293.75, as hereinafter
provided.
Payments shall be due and payable in such amounts and on such dates as are
set forth in the Amended and Restated Stock Employee Compensation Trust
Agreement dated as of March 25, 1998, by and among the Lender and the Trustees.
The Trust hereby waives presentment, demand, protest, and all other
demands and notices in connection with the delivery, acceptance, performance
default or enforcement of this Note.
This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Virginia.
The Company shall have no recourse whatsoever to any assets of any
Trustee. The Trustees are executing this Note solely as trustees.
TRUSTEES: TRUSTEES:
/s/ /s/
- ----------------------------- ------------------------------------
EDWARD G. BROENNIMAN GERALD F. MAYEFSKIE
/s/ /s/
- ----------------------------- ------------------------------------
SEBASTIAN P. MUSCO VINCENT RUSSO
/s/
------------------------------------
VINCENT L. SALVATORI
