<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------
FORM 10-Q
[X] Quarterly Report, Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended March 31, 1998, or
[ ] Transition Report, Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period _____ to ______
Commission File Number 2-88617
QuesTech, Inc.
(Exact name of Registrant as specified in its charter)
--------------
Virginia 54-0844913
- -------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
7600-A Leesburg Pike,
Falls Church, Virginia 22043
- -------------------------------- ------------------------------
(Address of principal executive offices) (Zip code)
(703) 760-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.05 par value 1,916,004
----------------------------- ------------------
Class Outstanding as of
April 30, 1998
<PAGE>
QuesTech, Inc. and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 1998
I N D E X
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information
Item 1 Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET 2
CONSOLIDATED STATEMENTS OF EARNINGS 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information
Item 1 Legal Proceedings 12
Item 6 Exhibits and Reports on Form 8K 12
Officers' Signatures 13
Index to Exhibits 14
</TABLE>
1
<PAGE>
QuesTech, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
Mar. 31 Dec. 31
1998 1997
-------- --------
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................ $ 111,600 $ 108,500
Accounts receivable ...................... 14,266,300 13,002,000
Inventories .............................. 116,500 69,200
Prepaid expenses and other ............... 279,400 165,300
Deferred income taxes .................... 239,500 239,500
----------- -----------
Total current assets ................ $15,013,300 $13,584,500
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - at
cost less accumulated depreciation and
amortization of $6,539,800 and $6,298,200,
respectively ............................. 5,353,400 5,434,400
GOODWILL less accumulated amortization of
$1,764,800 and $1,726,200, respectively .. 1,171,700 1,210,400
DEFERRED INCOME TAXES, net of valuation
allowance of $262,000 .................... 1,369,900 1,369,900
OTHER ASSETS ............................... 2,337,200 2,369,600
----------- -----------
TOTAL ASSETS $25,245,500 $23,968.800
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
QuesTech, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Mar. 31 Dec. 31
1998 1997
--------- --------
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Line of Credit ........................... $ 4,937,900 $ 3,919,800
Current maturities of long-term
obligations payable .................... 514,000 511,900
Accounts payable ......................... 1,729,100 2,195,400
Accrued liabilities ...................... 5,649,100 5,095,800
Income taxes
Currently payable ...................... 107,500 --
----------- -----------
Total current liabilities ........... $12,937,600 $11,722,900
LONG-TERM OBLIGATIONS ...................... 1,401,200 1,527,800
INDEBTEDNESS TO RELATED PARTIES ............ 1,574,100 1,542,900
ACCRUED POST-RETIREMENT BENEFIT COST ....... 1,608,000 1,577,000
OTHER LONG-TERM OBLIGATIONS ................ 870,600 894,300
----------- -----------
Total Liabilities ................... $18,391,500 $17,264,900
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - authorized 3,000,000
shares of $.05 par value, issued
1,925,904 and 1,657,304 shares,
outstanding 1,916,004 and 1,618,557
shares at March 31, 1998
and December 31, 1997 ................ 96,300 82,800
Additional paid in capital ............... 5,012,900 2,878,300
Retained earnings ........................ 4,443,900 4,297,900
Less Treasury Stock at cost .............. (30,200) (210,500)
Due from SECT ............................ (2,668,900) (344,600)
----------- -----------
Total Stockholders' Equity .......... $ 6,854,000 $ 6,703,900
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,245,500 $23,968,800
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---- ----
<S> <C> <C>
Revenues ...................................... $19,164,900 $19,812,700
Operating expenses
Salaries, wages and employee benefits ....... 11,009,500 10,186,800
Other operating expenses .................... 7,675,900 9,275,400
----------- -----------
Total operating expenses .............. $18,685,400 $19,462,200
----------- -----------
Income from operations ................ 479,500 350,500
Interest expense ............................ (226,000) (139,500)
----------- -----------
Earnings before income taxes ........... $ 253,500 $ 211,000
Provision for income taxes .................... (107,500) (89,400)
----------- -----------
Net earnings ........................... $ 146,000 $ 121,600
----------- -----------
----------- -----------
Earnings per share:
Basic .................................. $ .10 $ .08
Diluted ................................ $ .10 $ .08
Weighted Average Number of common shares
outstanding:
Basic .................................. 1,443,062 1,436,862
Diluted ................................ 1,508,404 1,509,610
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
QuesTech, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31
------------------
1998 1997
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net earnings ................................ $ 146,000 $ 121,600
Adjustments to reconcile net earnings to
Net cash provided by operating activities:
Depreciation and amortization ............. 304,800 272,700
Increase in value of Deferred Compensation
Plan assets ............................. (45,000) (50,000)
Changes in assets and liabilities ......... (1,089,300) 1,296,600
----------- -----------
Net cash (used in) provided by
operating activities .................. (683,500) 1,640,900
----------- -----------
Cash flows from investing activities:
Capital expenditures ........................ (189,300) (327,600)
----------- -----------
Net cash used in investing activities ... (189,300) (327,600)
----------- -----------
Cash flows from financing activities:
Increase(Decrease) in Line of Credit ........ 1,018,100 (1,227,400)
Cash proceeds from exercise of stock options 4,000 13,600
Repayment of long-term debt ................. (124,500) (97,400)
Repayment of Other Long-Term Obligations .... (21,700) (20,000)
----------- -----------
Net cash provided by (used in) financing
activities ............................ 875,900 (1,331,200)
----------- -----------
Net increase(decrease) in cash ................ 3,100 (17,900)
Cash, beginning of period ..................... 108,500 54,300
----------- -----------
Cash, end of period ........................... $ 111,600 $ 36,400
----------- -----------
----------- -----------
Cash payments for:
Interest .................................... $ 224,100 $ 133,600
Income taxes ................................ 15,800 268,300
Non-cash financing activities:
Issuance of 268,000 shares to the SECT ........ 2,144,000 --
Sale of 28,847 shares of Treasury stock
to the SECT ................................. 180,300 --
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
QuesTech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31
-----------------
1998 1997
---- ----
<S> <C> <C>
Common Stock:
Beginning balance ......................... $ 82,800 $ 82,500
Exercise of options ....................... 100 200
Issuance of shares to the SECT ............ 13,400 --
----------- -----------
Ending balance ............................ 96,300 82,700
----------- -----------
Additional paid in capital
Beginning balance ......................... 2,878,300 2,835,600
Exercise of options ....................... 3,900 13,300
Issuance of shares to the SECT ............ 2,130,700 --
----------- -----------
Ending balance ............................ 5,012,900 2,848,900
----------- -----------
Retained Earnings
Beginning balance ......................... 4,297,900 3,652,000
Net Earnings .............................. 146,000 121,600
----------- -----------
Ending balance ............................ 4,443,900 3,773,600
----------- -----------
Treasury Shares:
Beginning balance ......................... (210,500) (193,100)
Re-issuance of shares ..................... 180,300 --
Exercise of options ....................... -- --
----------- -----------
Ending balance ............................ (30,200) (193,100)
----------- -----------
Due from SECT
Beginning balance ......................... (344,600) (344,600)
Issuance of shares to the SECT ............ (2,324,300) --
----------- -----------
Ending balance ............................ (2,668,900) (344,600)
----------- -----------
Total Stockholders' Equity .................. $ 6,854,000 $ 6,167,500
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
QuesTech, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
1. General
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in the annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the company believes that the disclosures made
are adequate to make the information presented not misleading.
In the opinion of management, the accompanying condensed financial
statements for the periods presented reflect all adjustments and
reclassifications that are necessary for fair presentation. It is suggested that
these condensed financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
company's latest annual report to the Securities and Exchange Commission on Form
10-K.
2. Earnings Per Share
In 1997 the Financial Accounting Standards Board issued Financial
Accounting Standard 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 in the diluted EPS computation. Basic EPS ignores
potential 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 potential dilution, dilution that would occur if
securities were converted into common stock or other contracts to issue common
stock were exercised, resulting in the issuance of addition common stock that
would share in the earnings of the entity. In complying with the requirements of
SFAS No. 128, the Company has restated all prior period EPS data.
Although outstanding, the shares held by the Company-controlled Stock
Employee Compensation Trust ("SECT") are excluded from the weighted average
number of shares, for purposes of calculating earnings per share. As of March
31, 1998, a total of 366,600 shares are subject to outstanding stock option
7
<PAGE>
agreements and if dilutive, are accounted for as common stock equivalents
under the treasury stock method. The strike prices of these options range
from $4.00 to $7.70 per share. The average bid price of the Company's stock
for the quarter ended March 31, 1998 was $6.83 per share.
The following table reconciles basic and diluted EPS:
<TABLE>
<CAPTION>
Three Months
Ended March 31
------------------
1998 1997
---- ----
<S> <C> <C>
Numerator
Net Income $ 146,000 $ 121,600
---------- ----------
---------- ----------
Denominator
Denominator for basic EPS-weighted
average shares 1,443,062 1,436,862
Effect of dilutive securities stock options 65,342 72,748
---------- ----------
Denominator for diluted EPS 1,508,404 1,509,610
---------- ----------
---------- ----------
</TABLE>
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.
The Statement need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application shall be reported in financial statements for
interim periods in the second year of application. The Company has opted to
comply with the Statement's requirements effective with its filing of the 1998
10-K.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth major items included in the Unaudited
Consolidated Statement of Earnings as a percentage of revenue.
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1998 1997
---- ----
<S> <C> <C>
Revenues 100.00% 100.00%
Operating Expenses 97.50% 98.23%
------ ------
Income from operations 2.50% 1.77%
Interest (1.18%) (.70%)
Provision for income taxes (.56%) (.45%)
------ ------
Net Earnings .76% .62%
------ ------
------ ------
</TABLE>
Revenues for the three months ended March 31, 1998 were $19.2 million,
down 3% when compared with the same period in 1997. Revenues were impacted by
a revenue decline in the government contracts segment, as a result of the
transition of work associated with the Company's largest contract, TEFS, from
the former Vint Hills Farm Station in Warrenton, Virginia to Fort Monmouth,
New Jersey adjacent to the Army's Communications Electronics Command. TEFS'
revenues accounted for only 30% of the Company's combined government contract
revenues during the first quarter of 1998, as compared to 37% during the same
period last year. In addition, revenues from another large Army contract,
HTRD, declined as it nears completion this year. Revenue reductions from
these two contracts were partially mitigated by growth in new business,
particularly in video graphics production and technical and engineering
acquisition support.
In the commercial segment, revenues were $16,700 during the first quarter
of 1998. Production, which was expected to commence in March, 1998, has been
postponed until the second quarter of 1998 at the request of the customer. There
were no reportable revenues during the first quarter of 1997.
Salaries, wages and employee benefits as a component of total operating
expenses increased as a result of additional direct labor requirements for
contracts awarded late 1997. Other operating expenses declined as a result of
reduced contractual requirements for pass-through expenses, primarily for
TEFS, and delays in bid and proposal (B & P) expenditures. Management expects
B & P expenditures to increase during the course of the year. In addition,
management undertook a major cost containment initiative in order to temper
the rate of increase of certain indirect expenses, thereby benefiting
profitability of certain T & M (time and materials) contracts. In the
aggregate, total operating expenses for the first quarter of 1998 declined by
approximately 4% when compared with the same period last year.
9
<PAGE>
Income from operations at March 31, 1998, was $479,500, up 37% compared to
the same period last year. Expense decline and improved margins on certain
contracts contributed to the growth in income from operations.
During the first quarter of 1998, pretax income was $253,500, which
increased 20% over the same period in 1997 notwithstanding the increased
interest expense arising from higher levels of borrowing under the line of
credit. Earnings per share were $.10 on net earnings of $146,000, up 25% and 20%
respectively over the same period last year, when earnings per share were $.08
on net earnings of $121,600.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data with respect to
changes in the Company's liquidity and capital resources since December 31, 1997
(in thousands of dollars except for ratios):
<TABLE>
<CAPTION>
3/31/98 12/31/97 NET CHANGES
------- -------- -----------
<S> <C> <C> <C>
Working capital $ 2,075 $ 1,862 $ 213
Current assets 15,013 13,585 1,428
Current liabilities 12,938 11,723 1,215
Working capital ratio (1) 1.16 1.16 --
</TABLE>
(1) Current assets over current liabilities.
During the first quarter of 1998, the Company used borrowings under its
line of credit facility to finance its operations and capital expenditures.
Capital expenditures were incurred primarily to expand the Company's wide
area network by two additional sites and to upgrade PC (personal computers)
equipment. Cash flows from operations were impacted by a recent increase in
receivables, pending receipt of additional funding.
In addition, during the first quarter of 1998, the Company allocated
268,000 shares of newly issued common stock and re-issued 28,847 shares of
Treasury stock to the SECT. In consideration for the subject shares, the SECT
executed a promissory note to the Company in the amount of $2.3 million. The
note will be liquidated upon the SECT's release of shares of stock to fund the
exercise of stock options granted to certain Company employees under the
Company's various stock option plans.
Subsequent to the date of the financial statements, the Company
renegotiated an increase in its line of credit from $6 million to $8 million
and an extension of the term to March 31, 1999. Other terms of the agreement
did not materially change.
10
<PAGE>
YEAR 2000 ISSUE
Management has undertaken an investigation of whether the Company will
be adversely impacted by the issue of whether its systems are year 2000
compliant. Based on this review, management has determined that a material
adverse impact on the Company's financial statements is unlikely.
INFLATION
During the first quarter of 1998, the impact of inflation on the Company's
costs has been minimal. Inflationary costs are normally anticipated in the
pricing structure of contracts and recovered through the reimbursement of
contract costs incurred.
BACKLOG
Set forth in the table below is the Company's funded and unfunded backlog
as of March 31, 1998 and March 31, 1997.
<TABLE>
<CAPTION>
Funded Backlog Unfunded Backlog
-------------- ----------------
March 31 March 31
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
$43,334,536 $37,117,900 $315,916,164 $360,272,800
</TABLE>
"Backlog" is the aggregate contract revenues remaining to be earned under
written contracts as of the stated date. "Funded backlog" is that portion which
is covered by funding appropriations to and allotments by the procuring
agencies. "Unfunded backlog" is that portion of backlog equal to the backlog
less the funded backlog. Although there can be no assurance that unfunded
backlog will become funded backlog, historically a majority of the Company's
unfunded backlog has eventually been converted into funded backlog.
11
<PAGE>
PART II
Item 1. Legal Proceedings
The Company, including its subsidiaries, are not subject to any material
pending legal proceedings, and none of the assets of the Company or its
subsidiaries are subject to any such proceedings, other than routine litigation,
if any, incidental to the business and against which the Company is either
adequately insured, or which is not material.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required in connection with this quarterly report on Form 10-Q
are listed in the Exhibit Index following the signature page. Certain of such
exhibits, which have heretofore been filed with the Securities and Exchange
Commission and which are designated by reference to their exhibit numbers in
prior filings are incorporated herein as exhibits by such reference and made a
part hereof.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QuesTech, Inc.
--------------------------------
(Registrant)
Date: May 6, 1998 V. L. Salvatori
---------------------- --------------------------------
Vincent L. Salvatori
Chief Executive Officer and
Chairman of the Board
Date: May 6, 1998 J. P. O'Connell, Jr.
---------------------- --------------------------------
Joseph P. O'Connell, Jr.
Vice President and
Chief Financial Officer
13
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description page numbers
- ----------- ----------- ------------
<S> <C> <C>
3 Restated Articles of Incorporation *
and Bylaws of the Registrant,
incorporated by reference to Exhibit 3
of the Registrant's Registration
No. 2-88617
10.1 Officer and Managers Discretionary *
Bonus Plan, as amended and restated,
incorporated by reference to
Exhibit 10(d) of Registrant's Annual
Report on Form 10-K for the
period ended December 31, 1987
10.2 QuesTech Variable Deferral Plan *
incorporated by reference to Exhibit
10(k) of Registrant's Annual Report
on Form 10-K for the period
ended December 31, 1987
10.3 Limited Partnership Agreement with *
respect to the Kitty Hawk Office Center
incorporated by reference to Exhibit 10(v)
of Registrant's Annual Report on Form
10-K for the period ended December 31, 1989
10.5 Amended QuesTech, Inc. Officers and *
Managers Deferred Compensation Plan
incorporated by reference to Exhibit 10(t)
of Registrant's Annual Report on Form 10-K
for the period ended December 31, 1992
10.6 Lease dated November 24, 1993 between *
Louis Esposito and the Registrant
incorporated by reference to Exhibit
10(x) of Registrant's Annual Report
on Form 10-K for the period ended
December 31, 1993
10.7 QuesTech, Inc. Stock Employee Compen- *
sation Trust incorporated by reference
to Exhibit 10(y) of Registrant's Annual
Report on Form 10-K for the
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
period ended December 31, 1993
(a) Amended and Restated Stock *
Employee Compensation Trust
incorporated by reference to
Exhibit 10(q) of Registrant's
Annual Report on Form 10-K for
the period ended December 31, 1995
(b) Amended and Restated Stock Employee 32
Compensation Trust dated March 25,
1998
10.8 1994 Incentive Stock Option Plan *
incorporated by reference to Exhibit 10(aa)
of Registrant's Annual Report on Form 10-K
for the period ended December 31, 1994
(a) Amendment to 1994 Incentive Stock *
Option Plan dated November 15,
1995 incorporated by reference to
Exhibit 10(p) of Registrant's
Annual Report on Form 10-K for
the period ended December 31, 1995
10.9 Lease dated March 14, 1995 between John *
Hancock Mutual Life Insurance Company
and the Registrant incorporated by
reference to Exhibit 10(cc) of Regis-
trant's Annual Report on the Form 10-K
for the period ended December 31, 1994
10.10 Amended and Restated Loan and Security *
Agreement between Signet Bank and the
Registrant, dated June 3, 1996 incorp-
orated by reference to Exhibit 10(r) of
Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1996
(a) Amendment No. 1, dated May 31, 1997 *
1997, to the Amended and Restated
Loan and Security Agreement between
between Signet Bank and Registrant,
incorporated by reference to
Exhibit 10(t) of Registrant's
Quarterly Report on Form 10-Q for
the period ended June 30, 1997
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
(b) Amendment No. 2, dated December 23, *
1997, to the Amended and Restated
Loan and Security Agreement between
Signet Bank and Registrant, incorpor-
ated by reference to Exhibit 10.10(b)
of registrant's Annual Report on
Form 10-K for the period ended
December 31, 1997
(c) Amendment No. 3, dated April 5, 1998, 19
to the Amended and Restated Loan and
Security Agreement between First
Union National Bank, successor by
merger to Signet Bank and Registrant
(d) Amendment No. 4, dated April 28, 1998, 26
to the Amended and Restated Loan and
Security Agreement between First
Union National Bank, successor by
merger to Signet Bank and Registrant
10.11 Equipment Lease between General *
Electric Capital Corporation and
Registrant, dated October 24, 1996
incorporated by reference to Exhibit 10(x)
of Registrant's Quarterly Report on Form 10-Q
for the period ended September 30, 1996
10.12 1996 Incentive Stock Option Plan dated *
May 24, 1996, incorporated by reference to
Exhibit 10(a)(i) of Registrant's Annual Report
on Form 10-K for the period ended
December 31, 1996
(a) Amendment No. 1, dated March 15, *
1997, to 1996 Incentive Stock
Option Plan, incorporated by
reference to Exhibit 10.12(a) of
Registrant's Annual Report on
Form 10-K for the period ended
December 31, 1997
10.13 Stock Option Plan for Non-employee *
Directors, dated November 1, 1996,
incorporated by reference to Exhibit
10(a)(ii) of Registrant's Annual
Report on Form 10-K for the period
ended December 31, 1996
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
10.14 Sixth Amended Employment Agreement *
between Vincent L. Salvatori and Registrant,
dated November 24, 1997, incorporated by
reference to Exhibit 10.14 of Registrant's
Annual Report on Form 10-K for the period
ended December 31, 1997
10.15 Third Amended Employment Agreement *
between Gerald F. Mayefskie and Registrant,
dated November 17, 1997, incorporated by
reference to Exhibit 10.15 of Registrant's
Annual Report on Form 10-K for the period
ended December 31, 1997
10.16 First Amendment to Deed of Lease *
between John Hancock Mutual Life
Insurance Company and the Registrant,
dated December 31, 1997, incorporated
by reference to Exhibit 10.16 of
Registrant's Annual Report on Form
10-K for the period ended
December 31, 1997
21 Subsidiaries of the Registrant, *
incorporated by reference to Exhibit
21 of Registrant's Annual Report on
Form 10-K for the period ended
December 31, 1997
27 Financial Data Schedule 48
</TABLE>
* Previously filed; incorporated herein by reference.
17
<PAGE>
EXHIBIT 10.7(b)
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;
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
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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 theprovisions of the Trust.
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
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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 additional 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:
(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) areorganization, 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").
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"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.
"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 25, 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.
"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
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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 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.
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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.
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.
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5. ADMINISTRATION OF TRUST FUND
5.1. Management and Control of Trust Fund. Subject to the terms of
thisAgreement, 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 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 least
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 the Trust Fund and shall not include
Company Stock acquired with the proceeds of Loans;
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(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 forwhich 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 shallindicate 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 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
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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 thenumber 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.
(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
accordancewith 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
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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 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
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 He 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
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(as applicable) shall be subrogated to the rights of the
indemnified party against the insurance company.
(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 ail 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.
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
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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 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.
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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 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.
13
<PAGE>
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 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. Severabiiitv. 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 671, et seq. of the Code. Until advised
otherwise, the Trustee may presume that the Trust is so
14
<PAGE>
characterized for federal income tax purposes and shall make ail
filings of tax returns on that presumption.
9.7. Participants to Have No Interest in the Comnanv 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.
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.
M. P. Rivera V. L. Salvatori
- ------------------------- -----------------------------------
Corporate Secretary VINCENT L. SALVATORI
Chairman & Chief Executive Officer
TRUSTEES:
Edward G. Broenniman Gerald F. Mayefskie
- ------------------------- -----------------------------------
EDWARD G. BROENNIMAN GERALD F. MAYEFSKIE
Sebastian P. Musco Vincent Russo
- ------------------------- -----------------------------------
SEBASTIAN P. MUSCO VINCENT RUSSO
V. L. Salvatori
-----------------------------------
VINCENT L. SALVATORI
15
<PAGE>
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
16
<PAGE>
EXHIBIT 10.10(c)
AMENDMENT NO. 3 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "Amendment"), dated as of the 5th Day of April, 1998 is made by and among
QUESTECH, INC., a Virginia corporation ("QUESTECH"), QUESTECH SERVICE COMPANY, a
Virginia corporation formerly known as Engineering Resources, Inc. ("QTSC"),
QUESTECH PACKAGING, INC., a Virginia corporation ("QTPI"; QuesTech, QTSC, and
QTPI are referred to individually as a "Borrower" and collectively as the
'Borrowers"), and FIRST UNION NATIONAL BANK, a national banking association,
successor by merger to Signet Bank, a Virginia banking corporation (the
"Lender").
RECITALS
A. The Lender and the Borrowers entered into an Amended and Restated Loan and
Security Agreement dated as of June 3,1 996 (as amended through the date hereof,
the Agreement) pursuant to which the Lender has agreed to extend credit to the
Borrowers, and the Borrowers have agreed to obtain credit from the Lender, on
the terms and conditions set forth in such Agreement.
B. The Borrowers have requested that the Lender make certain modifications to
the Agreement, including increasing the Maximutn Amount, and the Lender has
consented to such request subject to the execution of this Amendment and the
satisfaction of the conditions specified herein.
C. The Borrowers and the Lender now desire to execute this Amendment to set
forth their agreements with respect to the modifications to the Agreement.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Lender and the Borrowers agree
as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
defined herein are deemed in the Agreement.
SECTION 2. Amendments to Agreement. The Agreement is hereby amended as
follows:
Amendments to Section 1. Section 1 of the Agreement is amended as follows:
(a) Commitment Fee. The definition of the term Commitment Fee is
replaced in its entirety with the following definition:
"Commitment FEE" means the quarterly fee to be paid by the Borrowers
to the Lender pursuant to Section 2.5 hereof in consideration of the
commitment by the Lender to make Revolving Loans hereunder. The Commitment
Fee due for each calendar quarter (or portion thereof) shall equal the
product of the Commitment Fee Rate in effect for such quarter (or portion
thereof) multiplied by the difference between $6,500,000.00 and the sum of
the average daily principal balance of the Revolving Loans during such
quarter (or applicable portion thereof) plus the average
1
<PAGE>
daily face amount of all Letters of Credit outstanding during such quarter
(or applicable portion thereof).
(b) Maximum Amount. The definition of the term Maximum Amount is
replaced in its entirety with the following definition:
"Maximum Amount" means, at any time, the lesser of (a) the difference
between $6,500,000.00 and the Letter of Credit Exposure as such time or (b)
the then applicable Borrowing Base.
(c) Revolving Note. The definition of the term Revolving Note is
replaced in its entirety with the following definition:
Revolving Note" means the promissory note in form and substance
acceptable to the Lender in the original principal amount of $6,500,000.00
(as it may be amended, modified supplemented or replaced from time to time)
evidencing the obligation of the Borrower tO pay the principal amount of
the Revolving Loans together with interest on the Revolving Loans.
SECTION 3. Representations and Warranties of Borrowers. The Borrower,
jointly and severally represents and warrants to the Lender that:
(a) Each Borrower has the power and authority to enter into and to
perform this Amendment, to execute and deliver all documents relating to
this Amendment, and to incur the obligations provided for in this
Amendment, all of which have been duly authorized and approved in
accordance with the Borrower's corporate documents;
(b) This Amendment, together with all documents executed pursuant
hereto, shall constitute when executed the valid and legally binding
obligations of the Borrowers in accordance with their respective terms;
(c) Except with respect to events or circumstances occurring
subsequent to the date thereof and known to the Lender, all representations
and warranties made in the Agreement are true and correct as of the date
hereof, with the same force and effect as if all representations and
warranties were fully set forth herein;
(d) Each Borrower's obligations under the Loan Documents remain valid
and enforceable obligations, and the execution and delivery of this
Amendment and the other documents executed in connection herewith shall not
be construed as a novation of the Agreement or any of the other Loan
Documents; and
(e) As of the date hereof, no Borrower has any offsets or defenses
against the payment of any of the Obligations.
SECTION 4. Waiver of Claims. As a specific inducement to the Lender without
which the Borrowers acknowledges the Lender would not enter into this
Amendment and the other documents executed in connection herewith, each
Borrower hereby waives any and all claims that it may have against the
Lender, as of the date hereof, arising out of or relating to the
2
<PAGE>
Agreement or any other Loan Document whether sounding in contract, tort or
any other basis.
SECTION 5. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Borrowers have executed and completed
this Amendment and a Revolving Note in form and substance acceptable to the
Lender, have delivered such original, executed documents to the Lender, and
have reimbursed the Lender for the Lender's costs and expenses incurred in
connection with this Amendment.
SECTION 6. Miscellaneous.
6.1 Reference To Agreement and Note. Upon the effectiveness of this
Amendment, each reference in the Agreement to "this Agreement" and each
reference in the other Loan Documents to the Agreement, shall mean and be a
reference to the Agreement as amended hereby and each reference in the
Agreement and the other Loan Documents to the "Note" shall mean and be a
reference to the applicable Note executed by the Borrowers and delivered to
the Lender pursuant to Section 5 hereof.
6.2 Effect on Loan Documents. Except as specifically amended above,
the Agreement and all other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, all Collateral given to secure the Obligations
of the Borrowers under the Agreement and the other Loan Documents prior to
the date hereof does and shall continue to secure all Obligations of the
Borrowers under the Agreement, as amended hereby and the other Loan
Documents, and, except as provided in the Agreement and the other Loan
Documents, no such Collateral shall be released until all conditions to
such release as contained in the Loan documents are satisfied or all
Obligations are satisfied and completely discharged.
6.3 No Waiver. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
the Lender under any of the Loan Documents, nor constitute a waiver of any
provision of any of the Loan Documents.
6.4 Costs, Expenses and Taxes. The Borrowers, jointly and severally,
agree to pay on demand all costs and expenses of the Lender in connection
with the preparation, reproduction, execution and delivery of this
Amendment and the other instruments and documents to be delivered
hereunder, including the reasonable fees and out-of-pocket expenses of
counsel for the Lender with respect thereto.
6.5 Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without giving
effect to conflict of law provisions.
3
<PAGE>
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this Amendment
to be signed by their duly authorized representatives under seal all as of the
day and year first above written.
QUESTECH, INC., a Virginia corporation
ATTEST:
M. P. Rivera By V. L. Salvatori
- ----------------------- -----------------------------------------------
(Asst.) Secretary Vincent L. Salvatori, Chairman
[corporate seal]
QUESTECH SERVICE COMPANY, INC., a Virginia
corporation
ATTEST:
M. P. Rivera By: V. L. Salvatori
- ----------------------- -----------------------------------------------
(Asst.) Secretary Vincent L. Salvatori, Chairman
[corporate seed]
QUESTECH PACKAGING, INC., a Virginia
corporation
ATTEST:
M. P. Rivera By: V. L. Salvatori
- ----------------------- -----------------------------------------------
(Asst.) Secretary Vincent L. Salvatori, Chairman
[corporate seed]
FIRST UNION NATIONAL BANK, a national banking
association
By: Robert Lee Reed
-----------------------------------------------
Robert Lee Reed, Assistant Vice President
4
<PAGE>
Customer #
Note #
REVOLVING NOTE
$8,000,000.00 28 April, 1998
----------------------
Falls Church, Virginia
FOR VALUE RECEIVED, QUESTECH, INC., a Virginia corporation ("QuesTech"),
QUESTECH SERVICE COMPANY, a Virginia corporation formerly known as Engineering
Resources, Inc. ("QTSC"), QUESTECH PACKAGING, INC., a Virginia corporation
("QTPI") and QT INFORMATION SCIENCES CORPORATION, a Virginia corporation
("QTISC"; QuesTech. QTSC, QTPI and QTISC are referred to individually as a
"Borrower" and collectively as the "Borrowers"), hereby jointly and severally
promise to pay to the order of FIRST UNION NATIONAL BANK, a national banking
association, successor by merger to Signet Bank, a Virginia banking corporation
(the "Lender"), at North Tower, 5th Floor, 7799 Leesburg Pike, Falls Church,
Virginia, or such other location as the holder hereof may in writing designate,
the principal sum of Eight Million and no/100 Dollars ($8,000,000.00) or such
lesser amount as shall equal the aggregate unpaid principal amount of the
Revolving Loans made by the Lender to the Borrowers in accordance with the Loan
Agreement in lawful money of the United States of America in immediately
available funds, on the Termination Date and to pay interest on the unpaid
principal amount of the Revolving Loans, at such office, in like money and
funds, for the period commencing on the date of each Revolving Loan until such
Revolving Loan shall be paid in full, at the rate or rates per annum and on the
dates provided in the Loan Agreement. The Borrowers may borrow, prepay without
penalty and reborrow hereunder in accordance with the provisions of the Loan
Agreement.
This Revolving Note is the Revolving Note referred to in the Amended and
Restated Loan and Security Agreement dated as of June 3, 1996 among the Lender
and QuesTech. QTSC and QTPI (as amended, modified, supplemented and replaced
from time to time, including that certain Amendment No. 4 to Amended and
Restated Loan and Security Agreement dated the date hereof, the "Loan
Agreement"), and evidences Revolving Loans made by the Lender thereunder.
Capitalized terms used in this Revolving Note which are not otherwise defined
herein have the respective meanings assigned to them in the Loan Agreement.
The Lender is hereby authorized by the Borrowers to maintain records of the
amount of each Revolving Loan made by the Lender in accordance with the Loan
Agreement, the date such Revolving Loan is made, and the amount of each payment
or prepayment of principal, interest, or other charges made in respect of such
Revolving Loan received by the Lender. The Borrowers agree that, absent manifest
error, the amounts so evidenced in such records shall constitute conclusive
evidence of the amount owed hereunder.
Upon the occurrence and continuation of an Event of Default, the principal
hereof and accrued interest hereon may be declared to be, or may become,
forthwith due and payable in the manner, upon the conditions and with the effect
provided in the Loan Agreement.
The Borrowers and every guarantor and endorser hereof hereby waive
presentment, demand, notice of dishonor, protest and all other demands and
5
<PAGE>
notices (other than as required by Section 8 of the Loan Agreement) in
connection with the delivery, acceptance, performance and enforcement of this
Revolving Note.
This Revolving Note is given in substitution for, and not in novation of,
that certain Promissory Note given by QuesTech, QTSC and QTPI to the Lender in
the principal amount of Six Million Five Hundred Thousand and no/100 Dollars
($6,500,000.00) dated April 5, 1998.
IN WITNESS WHEREOF, the Borrowers have caused their corporate names to be
signed by their duly authorized officers under seal as of the date and year
first above written.
QUESTECH, INC. a Virginia corporation
ATTEST: By: V. L Salvatori
-------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- ----------------------
Secretary
[corporate seal]
QUESTECH SERVICE COMPANY, a Virginia
corporation
ATTEST: By: V. L Salvatori
--------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- ----------------------
Secretary
[corporate seal]
QUESTECH PACKAGING, INC., a Virginia
corporation
ATTEST: By: V. L Salvatori
------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- ----------------------
Secretary
[corporate seal]
6
<PAGE>
QT INFORMATION SCIENCES
CORPORATION, a Virginia corporation
ATTEST: By: V. L Salvatori
-------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- -----------------------
Secretary
[corporate seal]
COMMONWEALTH OF VIRGINIA )
) to-wit:
COUNTY OF FAIRFAX )
The foregoing instrument was subscribed sworn to, and acknowledged before
me, the undersigned notary, public on this 28 day of April, 1998, in the
jurisdiction aforesaid, by Vincent L. Salvatori, the Chairman of QuesTech, Inc.,
QuesTech Service Company, QuesTech Packaging, Inc. and QT Information Sciences
Corporation, in behalf of, and as the duly authorized act of, each
such corporation.
M. D. Benford
---------------------------------
Notary Public [SEAL]
My commission expires: 7/30/2000
--------------
7
<PAGE>
EXHIBIT 10.10(d)
AMENDMENT NO. 4 TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 4 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "Amendment"), dated as of the 28 day of April, 1998, is made by and among
QUESTECH, INC., a Virginia corporation ("QuesTech"), QUESTECH SERVICE COMPANY, a
Virginia corporation formerly known as Engineering Resources, Inc. ("QTSC"),
QUESTECH PACKAGING, INC., a Virginia corporation ("QTPI"; QuesTech, QTSC and
QTPI are referred to individually as an "Original Borrower" and collectively as
the "Original Borrowers") and QT INFORMATION SCIENCES CORPORATION, a Virginia
corporation ("QTISC"; QuesTech, QTSC, QTPI and QTISC are referred to
individually as a "Borrower" and collectively as the "Borrowers"), and FIRST
UNION NATIONAL BANK, a national banking association, successor by merger to
Signet Bank, a Virginia banking corporation (the "Lender").
RECITALS
A. The Lender and the Original Borrowers entered into an Amended and Restated
Loan and Security Agreement dated as of June 3, 1996 (as amended through the
date hereof, the "Agreement") pursuant to which the Lender has agreed to extend
credit to the Original Borrowers, and the Original Borrowers have agreed to
obtain credit from the Lender, on the terms and conditions set forth in such
Agreement.
B. The Borrowers have requested that the Lender make certain modifications to
the Agreement, including, permitting QTISC to become a Borrower, extending the
Termination Date, increasing the Maximum Amount, permitting a higher advance
rate with respect to certain government receivables included in the borrowing
base, decreasing the unused fee charged with respect to the credit and
increasing the tangible net worth requirement for the Borrowers, and the Lender
has consented to such request subject to the execution of this Amendment and the
satisfaction of the conditions specified herein.
C. The Borrowers and the Lender now desire to execute this Amendment to set
forth their agreements with respect to the modifications to the Agreement.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Lender and the Borrowers agree
as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
defined herein are defined in the Agreement.
SECTION 2. Amendments to Agreement. The Agreement is hereby amended as
follows:
2.1 Amendments to Section 1. Section 1 of the Agreement is amended as
follows:
2.1 (a) Borrowing Base. The definition of the term Borrowing Base is
restated in its entirety with the following definition:
1
<PAGE>
"Borrowing Base" means, at the time in question, the sum of (a) 90% of
Eligible Billed Government Receivables, (b) 80% of Eligible Billed Commercial
Receivables, and (c) 85% of Eligible Billed Special Commercial Receivables, all
as depicted in the Borrowing Base Certificate the Lender has most recently
received pursuant to Section 2.1(e) or Section 5.8(g) provided, however, that
(i) the Borrowing Base shall be reduced by the Letter of Credit Exposure on the
date the Borrowing Base is being calculated, (ii) at all times the Borrowing
Base shall remain subject to verification by the Lender, and (iii) in no event
shall the Borrowing Base attributable to the Accounts Receivable described in
clause (b) of this definition of "Borrowing Base" exceed One Million and no/100
Dollars ($1,000,000.00).
2.1(b) Cash Collateral Account. The following sentence is added at
the end of the definition of Cash Collateral Account:
The initial Cash Collateral Account for QTISC is account number
2065202369252.
2.1(c) Commitment Fee. The definition of the term Commitment Fee is
restated in its entirety as follows:
"Commitment Fee" means the quarterly fee to be paid by the Borrowers
to the Lender pursuant to Section 2.5 hereof in consideration of the commitment
by the Lender to make Revolving Loans hereunder. The Commitment Fee due for each
calendar quarter (or portion thereof) shall equal the product of the Commitment
FeeRate in effect for such quarter (or portion thereof) multiplied by the
difference between $8,000,000.00 and the sum of the average daily principal
balance of the Revolving Loans during such quarter (or applicable portion
thereof) plus the average daily face amount of all Letters of Credit outstanding
during such quarter (or applicable portion thereof).
2.1(d) Commitment Fee Rate. The definition of the term Commitment
Fee Rate is restated in its entirety as follows:
"Commitment Fee Rate" means the rate calculated by multiplying
one-quarter percent (1/4%) by a fraction, the numerator of which is the number
of days in the calendar quarter, or shorter period for which the Commitment Fee
Rate is being calculated, and the denominator of which is 360.
2.1(e) Maximum Amount. The definition of the term Maximum Amount is
restated in its entirety as follows:
"Maximum Amount" means, at any time, the lesser of (a) the difference
between Eight Million and no/100 Dollars ($8,000,000.00) and the Letter of
Credit Exposure at such time or (b) the then-applicable Borrowing Base.
2.1(f) Revolving Note. The definition of the term Revolving Note is
restated in its entirety as follows:
"Revolving Note" means the promissory note in form and substance
acceptable to the Lender in the original principal amount of $8,000,000.00 (as
it may be amended, modified, supplemented or replaced from time to time)
2
<PAGE>
evidencing the obligation of the Borrowers to pay the principal amount of the
Revolving Loans together with interest on the Revolving Loans.
2.1(g) Termination Date. The definition of Termination Date is
hereby restated in its entirety as follows:
"Termination Date" means May 31, 1999 and any extension or extensions
thereof granted by the Lender in its sole discretion.
2.2 Amendments to Section 2.
2.2 (a) Amendment to Section 2.1 (c). Section 2.1(c) is restated in
its entirety as follows:
(c) If the Principal Amount exceeds the Maximum Amount, the Borrowers shall
immediately prepay the Revolving Loans to the extent necessary to reduce such
excess. If after such prepayment the Letter of Credit Exposure exceeds the sum
of (a) 90% of Eligible Billed Government Receivables, (b) 80% of Eligible Billed
Commercial Receivables, and (c) 85% of Eligible Billed Special Commercial
Receivables, all as depicted in the Borrowing Base Certificate the Lender has
most recently received pursuant to Section 2.1(e) or Section 5.8(g), the
Borrowers shall immediately deliver to the Lender such additional collateral as
the Lender shall deem necessary to adequately secure the Borrowers' obligations
with respect to such Letter of Credit Exposure.
2.3 Amendments to Section 5. Section 5 of the Agreement is amended as
follows:
2.3(a) Amendment to Section 5.12(a). Section 5.12(a) is deleted in its
entirety and restated as follows:
(a) Minimum Tangible Net Worth. As of the ending date of the
financial period depicted in each consolidated balance sheet of QuesTech
required to be delivered to the Lender under the terms of this agreement (as
part of Form 10-Q or 10-K, as applicable), maintain a Tangible Net Worth of at
least (i) Three Million Dollars ($3,000,000.00) for each period ending prior to
June 30, 1998 and (ii) Three Million Seven Hundred Fifty Thousand and no/100
Dollars ($3,750,000.00) for each period ending on or after June 30, 1998.
SECTION 3. Representations and Warranties of the Borrowers. Each Borrower,
jointly and severally, represents and warrants to the Lender that:
(a) Each Borrower has the power and authority to enter into and
to perform this Amendment, to execute and deliver all documents relating to this
Amendment, and to incur the obligations provided for in this Amendment, all of
which have been duly authorized and approved in accordance with each Borrower's
corporate documents;
(b) This Amendment, together with all documents executed pursuant
hereto, shall constitute when executed the valid and legally binding obligations
of the Borrowers in accordance with their respective terms;
3
<PAGE>
(c) Except with respect to events or circumstances occurring
subsequent to the date thereof and known to the Lender, all representations and
warranties made in the Agreement are true and correct as of the date hereof,
with the same force and effect as if all representations and warranties were
fully set forth herein;
(d) Each Borrower's obligations under the Loan Documents remain
valid and enforceable obligations, and the execution and delivery of this
Amendment and the other documents executed in connection herewith shall not be
construed as a novation of the Agreement or any of the other Loan Documents; and
(e) As of the date hereof, no Borrower has any offsets or
defenses against the payment of any of the Obligations.
SECTION 4. Waiver of Claims. As a specific inducement to the Lender without
which the Borrowers acknowledge the Lender would not enter into this Amendment
and the other documents executed in connection herewith, each Borrower hereby
waives any and all claims that it may have against the Lender, as of the date
hereof, arising out of or relating to the Agreement or any other Loan Document
whether sounding in contract, tort or any other basis.
SECTION 5. Conditions of Effectiveness. This Amendment shall become effective
when, and only when, the Borrowers have executed and completed this Amendment
and a Revolving Note in form and substance acceptable to the Lender, have
delivered such original, executed documents to the Lender, and have reimbursed
the Lender for the Lender's costs and expenses incurred in connection with this
Amendment.
SECTION 6. Miscellaneous.
6.1 Reference To Agreement, Revolving Note and Borrower or Borrowers.
Upon the effectiveness of this Amendment, each reference in the Agreement to
"this Agreement" and each reference in the other Loan Documents to the
Agreement, shall mean and be a reference to the Agreement as amended hereby,
each reference in the Agreement and the other Loan Documents to the "Revolving
Note" shall mean and be a reference to the Revolving Note executed by the
Borrowers and delivered to the Lender pursuant to Section 5 hereof, and each
reference to "Borrower" or "Borrowers" shall mean and be a reference to such
terms as defined in the preface of this Amendment.
6.2 Effect on Loan Documents and Accrued and Unpaid Interest, Fees and
Other Charges. Except as specifically amended above, the Agreement and all other
Loan Documents shall remain in full force and effect and are hereby ratified and
confirmed. Without limiting the generality of the foregoing, all Collateral
given to secure the Obligations of the Borrowers under the Agreement and the
other Loan Documents prior to the date hereof does and shall continue to secure
all Obligations of the Borrowers under the Agreement, as amended hereby and the
other Loan Documents, and, except as provided in the Agreement and the other
Loan Documents, no such Collateral shall be released until all conditions to
such release as contained in the Loan Documents are satisfied. Any interest,
fees and other charges due under the Agreement which have accrued and remain
unpaid as of the effective date of this Amendment
4
<PAGE>
shall be paid on the next succeeding date that any such charge which has accrued
on or after the effective date of this Amendment is due under the Agreement, as
amended hereby, unless any such charge is discontinued by this Amendment, in
which event the Borrowers shall pay the accrued and unpaid portion thereof upon
execution of this Amendment.
6.3 No Waiver. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Lender under any of the Loan Documents, nor constitute a waiver of any provision
of any of the Loan Documents.
6.4 Costs, Expenses and Taxes. The Borrowers, jointly and severally,
agree to pay on demand all costs and expenses of the Lender in connection with
the preparation, reproduction, execution and delivery of this Amendment and the
other instruments and documents to be delivered hereunder, including the
reasonable fees and out-of-pocket expenses of counsel for the Lender with
respect thereto.
6.5 Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without giving
effect to conflict of law provisions.
6.6 Assumption of Obligations. As evidenced by its signature below,
QTISC hereby assumes all Obligations of the Original Borrowers under the
Agreement, as modified hereby.
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this Amendment
to be signed by their duly authorized representatives under seal all as of the
day and year first above written.
QUESTECH, INC. a Virginia corporation
ATTEST: By: V. L. Salvatori
---------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- ----------------------
Secretary
[corporate seal]
QUESTECH SERVICE COMPANY, a Virginia
corporation
ATTEST: By: V. L. Salvatori
---------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- ----------------------
Secretary
[corporate seal]
5
<PAGE>
QUESTECH PACKAGING, INC., a Virginia
corporation
ATTEST: By: V. L. Salvatori
----------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- ---------------------
Secretary
[corporate seal]
QT INFORMATION SCIENCES
CORPORATIONS a Virginia corporation
ATTEST: By: V. L. Salvatori
----------------------------------
Vincent L. Salvatori, Chairman
M. P. Rivera
- ---------------------
Secretary
[corporate seal]
FIRST UNION NATIONAL BANK, a national banking
association, successor by merger to Signet Bank, a
Virginia banking corporation
By: Loriana Cipolletti
-----------------------------------
Loriana Cipolletti, Vice President
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 111,600
<SECURITIES> 0
<RECEIVABLES> 15,047,000
<ALLOWANCES> 1,479,900
<INVENTORY> 116,500
<CURRENT-ASSETS> 15,013,300
<PP&E> 11,893,200
<DEPRECIATION> 6,539,800
<TOTAL-ASSETS> 25,245,500
<CURRENT-LIABILITIES> 12,937,600
<BONDS> 0
0
0
<COMMON> 96,300
<OTHER-SE> 6,757,700
<TOTAL-LIABILITY-AND-EQUITY> 25,245,500
<SALES> 0
<TOTAL-REVENUES> 19,164,900
<CGS> 0
<TOTAL-COSTS> 18,685,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226,000
<INCOME-PRETAX> 253,500
<INCOME-TAX> 107,500
<INCOME-CONTINUING> 146,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
